ICBA Payments - All in the Pitch


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Ready or not, the “Age of Plastic” has arrived. Today, Visa USA estimates that consumers use credit and debit cards more than any other single payment option.

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ICBA Payments - All in the Pitch

  1. 1. payments! All in the Pitch With demand rising, credit card positioning still works By Jared Degnan eady or not, the “Age of misconception that community R Plastic” has arrived. Today, Visa USA estimates that consumers use credit and debit banks can’t compete with the largest national issuers. Though no one is arguing that cards more than any other single credit cards are a community payment option. Despite being in- bank’s last hope for profitability, grained as icons of modern they are proving to be a critical ele- consumer culture, many communi- ment of sust ainable payment ty banks are decidedly split on the strategies. Specifically, trends in value of maintaining active credit card programs. In a recent ICBA poll of commu- nity bankers, almost a third of the respondents said that they consider credit cards to be “not very” or “not at all important” to their overall payments strategy. This response seems to underscore a striking gap between the relationship value con- sumers place on their credit cards and the realities of building and maintaining competitive communi- ty bank credit card portfolios. As community banks look to deter- consumer payments are pointing to mine the most reasonable and the evolving role of credit cards as sustainable payment strategies, they transaction tools rather than instru- must decide for themselves how, ments of short-term debt. and if, credit cards fit into that mix. Furthermore, as consumers pay more reoccurring bills with their Changing the Value Proposition credit cards, the focus of their bank- Ask community bankers what they ing relationship is no longer their think of their credit card portfolio checking accounts, but the pay- and they’ll probably respond that ments instruments themselves. they are competitively wedged be- Nationally, the average American tween a rock and a hard place. On is finding it increasingly convenient one hand, a well-maintained credit not to use cash or checks for rou- card portfolio can provide much tine purchases. This trend has been needed brand visibility and a solid encouraged by increased accept- revenue stream. On the other ance at the point of sale as well as hand, credit card portfolios are re- the proliferation of products tied to ceiving increased scrutiny from rewards programs. Dat a pulled bank managers thanks to a spate of from ICBA Bancard’s limited pur- high-profile fraud claims and the pose bank’s credit card portfolio 07|2006 IndependentBanker 97
  2. 2. payments! illustrates that consumers are affluent. Visa Signature and card and desires, Starbucks set about now paying more than half of all enhancements like five-layer changing the wants and desires outstanding balances in full each cardholder protection are all of consumers. To compete with month. With such a shift in card meant to adapt to the most rapid- the proliferation of retail coffee program economics, many of the ly evolving and most profitable establishments, Starbucks found industry’s leaders are taking note. cardholder segments as well as success by creating a demand for In response to this trend, Visa the ways in which those card- a unique, personalized, high-end USA launched its first new brand holders use their cards. To cup of coffee. Community banks campaign in two decades that re- succeed, community banks must can borrow this strategy by offer- positions the association as a also reconsider their credit card ing cards that do not try to lifestyle purveyor. Visa hopes to portfolios in these terms, not compete with those offered by sway consumers to think of their only by segment but also how other issuers, but instead offer a Visa cards just as they do cash. to generate more day-to-day new or unique value proposition. The effort, kicked off during the transaction revenue. Emerging as a critical part of a winter Olympics in Torino, Italy, community bank’s credit card features funny, pointed and Positioning Matters strategy is no longer the “how” or sometimes-emotional ads that fo- Even with a well-focused pay- the “where” of credit card use, cus on the day-to-day aspects of ments strategy aimed at driving but the “why.” Just as Starbucks Visa usage. Instead of large pur- sustainability through increased and Visa read consumer demand chases that were previously the transactions, community banks and adjusted product positioning hallmark of credit card usage, are still faced with the question, accordingly, community banks Visa profiles images associated “How do I get the cards in the can use their community rela- with more Spartan products such hands of my consumers when I tionships to maintain a place in as diapers, milk and coffee. am in competition with market- consumers’ wallets. Support for Issuers are also refocusing their ing behemoths like MBNA and local independent merchants attention on bolstering key seg- Citibank?” and affinity cards that benefit ments of their card portfolios. As The answer, it turns out, is not causes including local colleges, an example, Visa’s new ad strate- in beating the larger issuers to high schools, clubs and charities gy is being paired with a more the mailbox, but in creating new can be particularly effective at intense focus on niche segments consumer demand for communi- gaining a larger share of con- like baby boomers and the new ty bank credit cards with sumers’ credit card payments. well-targeted positioning. This Ultimately, community banks game has been played many that choose to maintain a credit LEARN MORE times over in other industries. card product in their payments Every bank needs to offer a credit Take coffee, for example. Once strategy can compete and benefit card program, but not every bank the staple of stovetop percolators from a payment method that is is interested in maintaining its own and greasy diners, coffee has expected to grow exponentially portfolio or handling the day-to- evolved into a $40 billion gour- in the next few years. Despite day operations. Total Card met retail industry, according to perceptions that credit cards are Management is designed to posi- the National Coffee Association. a zero-sum game, consumer pref- tion community banks in the credit With such a saturated market erences are pointing to smart card business, while limiting or and a seemingly standardized positioning as a key to ensuring eliminating their exposure to risk commodity, one might not think community banks maintain their and marketing costs. Community any coffee shop could effectively share of the most profitable slice banks can offer credit cards that corner the market or differentiate of the payments market. ib offer value to every customer seg- their positioning. Then again, we ment without the administrative all know how Starbucks proved Jared Degnan is a marketing hassle. To lear n more, go to that theory wrong. specialist for ICBA Services www.icbabancard.com or call Rather than create a strategy Network. Reach him at (703) 841-5102. that played on consumers wants jared.degnan@icba.org. 98 IndependentBanker 07|2006