Long stuck with cookie-cutter credit issuance capabilities due to their size, staff, partners and geographic limitations, small financial institutions (FIs) have been at a distinct disadvantage in the crowded market. credit cards. But transmitter processors like i2c are changing the dynamics, giving them direct broadcast services and other tools needed to level the playing field against the bigger players in the game.
Financial institutions have traditionally had few options for issuing credit cards outside of what third-party banks offer, i2c vice president of global product development Dan Hanks told PYMNTS.
He added that these legacy solutions are “essentially off the shelf, take it or leave it. This is what community banks should follow when choosing agent banking solutions.
And these cookie-cutter solutions simply cannot match the functionality and richness that the major issuers can offer.
“This is the danger for community banks because community banks really rely on loyalty,” Hanks said. “You know your customer, you’re in the community, you have this strong relationship, but at the end of the day, loyalty doesn’t go far. “
The problem is, large issuers can go for full credit cards that appeal to small bank customers and then poach them.
“Let’s say the customer gets a product from Chase, Wells, Citi, BofA or someone like that,” Hanks said. “As soon as that happens, these banks will start to cross-sell to these customers. Mortgages, [home equity lines of credit (HELOCs)], self – all the things that are central to the business of community banking, and that is the danger. You don’t want to leave any of these big players in this relationship.
Observing that small financial institutions “realize that the agent banking model isn’t working for them and are starting to take the leap into direct issuance,” Hanks said it can be difficult without help.
He said it was just not possible for most community banks or credit unions to pay and recruit internal credit card teams to compete. One solution for these smaller IFs is to partner with a sending processor like i2c to handle the heavy lifting and day-to-day management of the program.
See also: Agora Services, i2c partner on digital banking for CUs, community banks
Agent banking model ‘doesn’t work’ for small FIs
Banks are starting to understand that working with bank agents isn’t the best solution, but starting from scratch without help just isn’t doable, Hanks said.
Reciting the litany of ancillary services needed to support the direct broadcast – decision making, call center, fraud, litigation, reporting, settlement, declarations – he said: “They won’t be able to hire up to 10-15 people. in a community bank. to run a card business.
Digital banking and card issuance platforms like i2c’s provide solutions that enable these players to issue directly without the internal investments and staffing requirements of card programs.
“You can set up a [credit card] produced with us [containing] rewards – cash, points, miles, even crypto – in one [graphical user interface], “he said.” A person can do it in an hour and have a product up and running. “
“[Building a card program on our platform] brings end-to-end services, a complete decision engine, advanced fraud detection and everything to help them, ”he added. “All of these features are optional. Some banks like to do some of these things on their own, but we can provide them all ”as needed.
Read also: Community banks prepare for credit rebound and seek banking alternative
Leverage loyalty and generate more revenue
As the wave of branch closings that began in 2020 gathers momentum this year, community banks, regional banks and credit unions are under pressure to innovate and retain customers. Direct issuance is a key strategy for many smaller operators going on the offensive.
Having a strong partner makes all of this possible.
Hanks told PYMNTS that “it really helps them take that leap. We have seen community banks that can basically manage their [direct issuing] deal with two or three people.
And i2c doesn’t just offer loyalty.
“You actually own a card business,” he said. “You get the trading income, you get the interest income. There is a positive business case there when the smaller FI owns the card business and doesn’t have to share the revenue with the agent banks.
“You can create a much more competitive product while still having a positive economy because you keep all of that income,” he said. “You outsource a lot of the operational work… so you get benefits of scale. Cards [are] a large-scale business. You need a way to handle this.
By controlling end-to-end issuance, small financial institutions can then leverage the loyalty they are known for, driving more customer satisfaction while creating new revenue and data streams. It also taps into their superpower: knowing their customer. In addition, they do not have to worry about losing customers to other FIs trying to sell competing core banking services.
Take a bank customer with a credit score of 660, Hanks said.
“If they apply anywhere [they may] be rejected, even with the agent’s bank, ”he said. “But let’s say you’re a community bank, and you know they’re at 660, but they had a checking account with [you] for 15 years. Their paycheck shows up with direct deposit like clockwork every two weeks, they had a car loan with [you], which they paid. These are the kinds of things you can factor into your decision, [using] the decision engine that we [provide], then say to 660, “I can give this customer a card.” “
Beyond that, adding a FinTech partner for direct issuance has implications for finance outside of community banks and credit unions, as it can reduce risk, which spurs innovation.
The big banks “tend to be more conservative, which is absolutely the right move from their perspective,” Hanks said. “But that’s not necessarily what drives innovation the best. “
“You also see it with FinTech, with different segments, different products, more innovation,” he added. “Whether it’s a type of product or the segments they’re looking for – younger customers, thin file, no file, new to bank customers – there are a lot of opportunities out there. . “
Read too: i2C and Credijusto launch credit card for Mexican SMEs