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.

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. 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