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How Community Bank-Issued Commercial Cards Strengthen Customer Relationships

This year is expected to be a year in which bankers –  especially community bankers – will need to invest heavily in digital technology to maintain and grow existing customer relationships. Community bankers, known for their community-first approach, excel at knowing their local market needs.

However, only a few community banks invest in new financial products to meet the evolving needs of their customers. One such product is credit cards, for which affordable digital technology has not been available to community banks in the past. 

According to the FDIC call reports, community banks own half of all term loans to small businesses, yet four out of five have no credit card loans. Likewise, according to the 2020 McKinsey Global Payments Report, payments grew faster than overall banking revenues in 2019, increasing its share to just under 40%, compared with roughly 33% only five years earlier. Credit cards are the largest source of payments revenue, at roughly 44%. 

This presents community bankers a significant strategic opportunity to capitalize on the increased growth of cards and payments. Community bankers can utilize commercial cards and virtual cards to quickly capitalize on this growth and strengthen the relationships between them and their existing commercial and business customers, all while boosting their local communities.

The Value of Issuing Commercial Cards

Community banks place an emphasis on supporting small and local business through providing financial products valuable to these organizations. Commercial cards are in strong demand, but are rarely issued by the local bank. Rather, the local bank uses an agent bank credit card program through a national bank issuer, who is typically not familiar with the customer or the community. 

This can lead to challenges as the local bank does not manage the credit card relationship with the customer. The commercial or business customer is left to deal with the national issuing agent bank. When problems arise, there is a lack of rapport between both parties to come together for a solution, particularly for larger business customers. In many cases, the agent bank credit card program offers consumer and small business credit cards only, lacking the commercial card product needed by larger businesses and local municipalities.

With the available affordable digital technology, community banks have no reason to miss out on healthy revenues via interchange from credit card spend and interest from credit card loans. The agent bank credit card offering is an outdated program that disenfranchises the very customers who are critical to the success of the community bank.  

Providing a commercial card program by the community bank solves these concerns. Commercial cards offer a significant opportunity for banks to serve nonprofits, municipalities and mid-to-large companies. A few benefits include company-level and employee credit limits, consolidated or individual level billing and payment, extensive spend controls, alerts and configuration settings, built-in expense reporting and rebates set at company level. The community bank has the potential of realizing high annual interchange revenue at more than 2.2% of spend, and credit loss rates of less than 1% with commercial cards.

The Growing Migration Toward Virtual Cards for Banks and Businesses

As we continue to navigate the COVID-19 pandemic, there has been increased interest in the adoption of virtual cards, a feature of commercial cards. They can be recurring, or one-time use on-demand virtual cards that enable accounts payable managers to restrict usage to a specific amount, supplier and time period to pay an invoice. As communities continue to cycle through periods of increasing COVID-19 cases, virtual cards can prove pivotal for supporting a remote workforce and enabling employees to obtain the resources needed to work from home.

Virtual cards are unique in that they are digital and able to facilitate lower payment processing expenses and are easily reconcilable with financial systems. Industry estimates are that a payment with a virtual card saves a company about $8 over the cost to print and handle a check. Virtual cards can also mitigate the fraud risk often associated with cards, while increasing working capital by managing cash flow. Lastly, they are helpful in strengthening supplier relationships for businesses.

When able to control their card issuing program, community banks only increase the value they bring to their commercial and business customers and communities. By issuing commercial cards, community bankers stand to improve their profitability and maximize their relationships with customers during a troubling time, and capitalize on the growth that the card industry has experienced over recent years.

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