These days, many financial institutions are more eager to begin issuing new credit cards to consumers who can handle them properly, and among that group is smaller banks, which have largely stayed on the sidelines until recently.
Credit card lending from well-known but smaller regional banks is on the rise for a number of reasons, according to a report from the Wall Street Journal. One of the biggest is that some major lenders are trying to reduce the overall size of their credit card portfolios at the same time as many consumers are considering reentering the borrowing process after scaling back use of these accounts following the recession.
That renewed interest on the part of consumers and reduced role for major banks has opened the door for smaller financial institutions to fill the gaps, the report said. Financial institutions stepping up their lending efforts include M&T Bank, Regions Financial, Sovereign Bank, Huntington Bancshares and Commerce Bank.
Incentive for smaller lenders
Another reason these institutions are getting into credit card lending at this time is simply because they feel that it's important to develop relationships with borrowers, which can then, theoretically, blossom into broader banking habits, the report said. Having access to a borrower gives them a relatively captive audience for any new banking products the institutions may want to push, and in turn lead to more revenues.
Many banks are looking for a significant uptick in the amount of money they bring in, particularly because interest rates for nearly all types of loans are either currently at or hovering near all-time lows, the report said. This may be problematic because the Federal Reserve has also stated it will make efforts to keep those rates abnormally reduced at least through the end of 2014. Therefore, by fostering relationships that may reach across several banking platforms, these smaller institutions believe they can earn higher profits from their relationships with consumers.
"When you have your own credit-card program, you get a lot of information on customer-spending habits," Richard Gold, M&T's executive vice president for mortgage and consumer lending, told the newspaper. "When that data resides somewhere else, you are relinquishing a strategic asset to a competitor."
It's not easy
Despite an increased effort in extending credit cards to new customers, smaller banks may sometimes have a problem doing so, the report said. That's because their credit card products are simply not as well-known as those of larger lenders. Indeed, the nation's six largest credit card issuers (American Express, Bank of America, Capital One, Citi, Discover and JPMorgan Chase) currently control 75 percent of purchase volume nationwide, despite scaling back their lending efforts in the last three years.
Nonetheless, smaller banks are finding some amount of success, the report said. M&T saw outstanding balances rise 126 percent in 2011, and through the end of June, they're valued at roughly $250 million. Meanwhile, Regions' rose 19 percent last year.
At the same time, even as more consumers become interested in credit card borrowing, the number of those who may not have access to credit remains high, the report said. A recent study by the Federal Reserve Bank of Cleveland found that 24 percent of consumers don't have a credit card, up from 16 percent two years ago.
The cost involved
One of the reasons smaller banks may have difficulty competing with the larger participants in the industry is that they simply do not have the resources available to them to market as heavily as they might like, the report said. Studies show that direct mailing efforts usually cost about $300 per new borrower they bring in, and that's a cost most smaller banks can't bear.
Therefore, one thing many of these small institutions are doing now is marketing more aggressively to customers within their own branches, rather than through direct mail, the report said. Often, they might even make efforts to make a sales pitch directly to those they've determined might benefit from credit card use, and do so in person.
Whenever you're thinking about getting a credit card, you should know that the best possible rates will always be available to those who have top-notch credit ratings. Therefore, before you apply, you should take the time to closely check a copy of your credit report to determine that you are not being affected by any unfair markings, which may be dragging down your credit score. If you discover any such entries, it may be a good idea to contact a credit repair law firm as a means of clearing up the marking and returning your credit rating to where it deserves to be