Article

Last month we co-hosted a webinar for financial institution leaders covering what they should know about outsourcing a credit card program and what to consider when seeking a partner.

Here are five questions from the event that may help you decide what model is best for your financial institution and customers. 

1. When should a financial institution review their existing credit card processor? 

It is best practice to do a thorough review your card program every 2–3 years, if not annually. Look at it from the financial institution’s value perspective and from the customer experience. Is performance hitting expected financial marks? If not, ask yourself these questions:

• What opportunities is the current processor offering to help your program grow?
• Are your cardmembers satisfied with the current products and services?
• What products and technology are in the pipeline from your partner to meet industry trends and evolving customer needs?

Don’t be afraid to explore alternative solutions during this time. A conversation with a potential partner could help you see your program’s strengths and opportunities.

2. How can a financial institution maintain a competitive credit card program that creates profitable growth for the next 5–10 years?

It is easy to look at past performance and expect similar results. However, there are many forces that can change card program profitability. Consider how future cash flows can be affected and how new regulatory requirements can impact liquidity. What’s the cost to keep your program competitive? Think about the line-item estimates for product upgrade requirements, servicing technology changes, rising collection costs, and non-payment (losses) to start. 

3. What digital capability investments are required to meet customer expectation for the next 5–10 years?

Cardmembers expect to interact with their card issuer solely through their mobile device on everything from fraud claims to new plastic requests. Investing in digital servicing should be the highest priority over the next five years.

4. Who should manage the card program and its profitability?

Credit cards are a labor-intensive loan product. Head of product development, marketing, operations, lending, risk, compliance, and financial officers should all have influence in the design of the card program and its profitability. If your team does not have the resources to ensure cardmembers’ needs are met and that the financial returns are worth the risk internally, it may be time to consider an alternative solution. 

5. What are longer term risks of managing a card program?

It’s tough to know how the industry will change over the next 5–10 years, but here is what we do know. There is tremendous pressure by third party companies to capture your cardmembers attention. Buy Now Pay Later, P2P services, and other evolving digital payment methods are all trying to capture spend on credit card. We have also been in a period of low-cost, low-risk loans keeping profitability stable. That period has shifted increasing the risk for your financial institution. Incorrect loan pricing, losses, and funding costs, which can put a serious strain on your program’s profitability long-term, and why frequent evaluation, or the right partner, is critical.  

If you missed the event, or want to learn more, you may download the full presentation and supporting materials here.