Credit Card Program 101: Building a Strong Foundation for Success

Thinking about implementing a credit card program at your financial institution?

Before embarking on the launch of a credit card program, an institution must consider if they want “to own or not to own.” According to Michael Fuccillo, PRI credit card consultant, it is important to evaluate the available issuing options periodically and implement the strategy that best suits your organization’s needs and risk tolerance.  

There are three primary credit card issuing models that financial institutions may consider when launching or converting a credit card program: 

1. Agent model.

In this model, the financial institution contracts with an issuing partner that issues the card and manages the program. The issuing partner defines the products, the rates, the fees and the features of the credit cards. All the cards, the marketing materials and the servicing site will be branded with the institution’s logo, but the issuing partner owns the program, manages the P&L, absorbs the risk and is responsible for regulatory compliance. The issuing partner pays the financial institution a revenue share for its participation and for growth in the program. Although agent program income potential is lower than self-issuance, there is very little risk and typically little or no cost for the financial institution to participate. 

2. Self-Issuance model.

Self-Issuance allows your institution to completely design the program from scratch and maintain control over all aspects of the program. It is a much larger undertaking, but self-issuance can deliver higher profits and more flexibility if managed properly. The financial institution selects the brand (Visa/Mastercard), picks a credit card processor, and defines the card types (Platinum, Signature, World), rates, fees, rewards, insurances, underwriting criteria and all terms and conditions. The financial institution earns all income but is also responsible for all costs, losses and regulatory compliance in this model. 

3. Hybrid model.

A hybrid approach offers the financial institution more control over the product configuration and P&L, but it requires the financial institution to absorb credit risk and cost. 

“The agent issuing route makes launching a credit card relatively easy,” Fuccillo said. “Your issuing partner will manage most of the implementation, train your staff, cover the costs and manage the launch. They also will offer acquisition and marketing opportunities to grow the program.”    

Building a strong foundation for self-issuance 

Credit cards are a convenient spending product, a flexible lending product and an amazing loyalty tool, all at once. Launching (or converting) a credit card program can be a complex process that requires expertise and engagement. 

“A well-managed self-issued credit card program can deliver strong income, greater brand exposure and increased customer satisfaction,” Fuccillo said. “However, a credit card program can take several years to reach profitability, so long-term commitment is key.” 

This commitment includes assigning a dedicated team to manage the credit card implementation (or conversion) and facilitate the ongoing program management. Key players should include:  

1.     A management team committed to investing in and growing the program.

2.     A strong program leader committed to service and program growth.

3.     A supportive processor the institution can lean on for guidance

4.     Any internal staff with credit card expertise or an experienced consultant committed to your success. 

Decisions, decisions. 

The choices the organization makes early in the implementation process will dictate its ultimate success or failure. Some crucial decisions that must be made are: 

• Designate an executive sponsor with program responsibility
• Assign a dedicated and experienced credit card program manager
• Recruit strong project team members
• Pick a brand (Visa/Mastercard)
• Select a credit card processor.  Choose wisely as the processor will be with the FI for at least the first five years of the program.
• Develop a strong value proposition and appropriate program parameters

o   Product types (Platinum, World, Signature, etc.)

o   Rates, fees, promotional rates

o   Features, benefits, fraud settings and system controls

o   Loyalty/rewards, first-use bonuses

• Create plastic designs and marketing collateral representative of your brand and the communities you serve
• Create underwriting and collections guidelines
• Develop web/social media strategy
• Develop acquisition strategy
• Develop an annual marketing plan
• Consider incentives for staff for booking new credit card accounts
• Communicate with staff in preparation for launch
• Train staff and launch 

One of the most valuable benefits of the community bank is the community itself. Fuccillo recommends leveraging the community connection in your acquisition and marketing efforts. A credit card is a loyalty builder, and institutions should leverage every opportunity to build on their brand messaging. Credit cards give you many opportunities to promote  your brand  via custom card designs, targeted marketing and loyalty messaging.  

“Highlight your brand and make the card and its features appealing to your customers,” he said. “You can’t do it all, so stick with the basics. Develop a strong value proposition, competitive rewards, an appealing plastic design and marketing that is representative of your brand and the communities in which you serve.” 

Your staff members can be the best promoters of your credit card program. 

“Encourage your staff to use your credit card by offering them lower rates, extra rewards, waived fees and the like,” Fuccillo said. “Staff members who carry your cards will be much better at articulating the features and benefits of the card if they use the card themselves.”  

Fuccillo emphasizes that it’s wise to invest in acquisition campaigns and promotional activity to get cards into the hands of customers and motivate them to use those cards. With the right pricing and proper risk controls, credit cards can generate higher returns than other financial products, and that’s important to profitability and the bottom line. 

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to strategic planning to propel growth and improve profitability.