Why Your Card Program Benchmarks Are Probably Wrong, and How to Fix Them

Need to Know

• Credit card profitability isn’t driven by interchange or volume — up to 80% of profit comes from interest on revolving balances. Programs heavy on transactors often look healthy but barely break even after rewards and operating costs are factored in.
• Community banks and credit unions must track different benchmarks than national issuers to win. Metrics like Net Interest Margin (NIM), ROA, charge-offs, churn and revolving user penetration matter more than swipe volume or rewards redemption.
• Hidden and underestimated costs quietly erode ROI. From rewards and fraud management to capital needs, compliance and operational overhead, many smaller institutions miss the true cost of running a card program — and budget too late.

Credit card programs consistently deliver return on assets between 3% and 6%, outperforming the banking sector’s average ROA, which is just over 1%. But program profitability often depends on knowing what drives returns and what costs smaller financial institutions often miss.

• Interest income from cardholders who carry balances generates 80% of program profit, not interchange or fees. However, hidden expenses, from program costs, fraud management and operational overhead can often overrun projections. Get either dynamic wrong and it’s easy to track the wrong metrics or blow through budgets on costs banks don’t anticipate.

For community banks and credit unions evaluating card programs, it’s critical to know where profit actually comes from, what benchmarks matter for their size and model and what costs are often underestimated.

Want more insights like this? Check out Elan’s content portal: Credit Card Issuance: Strategies & Solutions

Where Card Programs Profit Actually Comes From

Interest income from cardholders who carry balances drives credit card program profitability more than any other factor. Yet many banks still optimize for interchange fees, transaction volume and rewards programs instead.

“On average, the credit function (including interest on balances) accounts for about 80% of the total program profit, while the transaction function often results in a loss due to high reward and interchange costs,” Aris Jerahian, director and strategic consultant at Rise Analytics, a payments consulting firm, tells The Financial Brand.

According to research from the Federal Reserve, the transaction side —  interchange, annual fees and usage fees — often operates at a loss once reward expenses are factored in. For smaller institutions, this can change how they think about program design, which metrics to track and whether to build or partner.

• Rewards are the largest expense category for most issuers, followed by fraud losses and charge-offs. Consumers earned more than $40 billion in rewards in 2022, with the average reward value increasing from 1.4 cents per dollar spent in 2019 to 1.6 cents. In addition, capturing revolving balances is becoming more difficult as alternative payment options pull customers away from traditional credit cards. Buy Now Pay Later (BNPL) has exploded in popularity, offering up another way to finance purchases without carrying credit card balances.

“The real earnings power comes from revolvers: cardholders who carry balances month to month,” says Matthew Goldman, founder of Totavi, a fintech consulting firm. “Without them, a credit portfolio becomes a rewards-subsidy machine.”

Portfolios heavy on customers who pay in full each month can show strong transaction volume but barely break even. These customers earn rewards on every purchase yet generate minimal interest income. That’s why cardholders who carry balances can matter more than optimizing for transaction volume.

“Ultimately, profitability comes down to balancing spend and revolve behavior against reward costs and risk management,” says Matt Denham, co-founder and head of payments at Prizeout, a payment rewards platform.

Benchmarks That Matter for Smaller Banks

Smaller financial institutions need different benchmarks than national issuers. The metrics that matter for a regional bank aren’t the same ones a top ten issuer tracks.

“Community and regional banks should prioritize Net Interest Margin (NIM), analyzing revolving balances and reward costs relative to portfolio spend and retention,” says Erik Wichita, head of card services, Fiserv, a global fintech and payments company. “Additionally, smaller institutions will want to monitor their return on assets (ROA), credit loss / charge off rate, card churn rate, revolving credit users and the cost of new customer acquisition.”

• NIM and ROA can matter more for community banks than transaction volume. Smaller institutions may struggle to compete on scale. But they can excel at building profitable relationships with customers who carry balances rather than competing on rewards programs they often can’t afford to maintain.

The right benchmarks also vary by card type, according to Jerahian. “Consumer credit should track NCM, rewards burn rate and delinquency closely. For small-business credit, emphasize spend controls, utility-driven features and cashback efficiency. And debit should focus on interchange income, usage frequency and fraud cost ratios.”

How institutions build their programs — self-issued versus partnered — changes which metrics matter most.

Dig deeper:

• Credit Card Issuance: Strategies & Solutions
• Plastic Won’t Win Wallets – But Frictionless Experiences Will
• Smart Banks Aren’t Building Card Programs, They’re Launching Them

“Self-issuers need tight control over risk-adjusted margin and rewards liability. Agent-issuer institutions should emphasize penetration and activation over risk,” Denham says. “Those using fintech or partner-driven models must track digital adoption, card-in-wallet rates and incremental spend generated by partner features.”

For smaller institutions using partner or fintech models, engagement metrics often determine whether the program succeeded.

According to Alkami research, half of digital banking users would switch providers for a better digital experience and consumers increasingly define their primary financial provider by where they do most of their digital banking, not legacy relationships. That means tracking digital adoption, card-in-wallet rates and spend generated by partner features determines whether a program captures that primary card position in an increasingly competitive market.

Costs Banks Often Underestimate

Hidden costs can derail card program ROI. The expenses that catch smaller banks and credit unions off guard aren’t always obvious, but the biggest is often capital.

“Teams often underestimate the amount of capital they need on a monthly basis just to keep a program running,” says Goldman. “You can have a strong ROI but still starve the business of liquidity.”

Card programs can seem profitable based on projected revenue, but institutions often underestimate the funds needed to keep the program running. Beyond capital, Goldman also notes that operational costs can quickly pile up.

“Ops costs are almost always underpriced: disputes, compliance and required notifications stack up quickly. Card programs look automated from the outside but remain operationally heavy on the inside.”

Technology, rewards and a range of smaller recurring expenses can also catch banks off guard.

“Many underestimate the expense and resources needed for integrating and scaling new technologies, as well as the strategic partnerships needed to stay competitive in digital wallets and fintech ecosystems,” says Wichita. “Additionally, robust consumer protections and rich rewards programs — critical for maintaining loyalty — can carry long-term costs that are often overlooked.”

Both Jerahian and Denham point to a longer list of recurring expenses that can add up, including:

• Ongoing platform licensing
• API maintenance and integration
• Loyalty program fulfillment
• Fraud management tools
• Compliance monitoring
• Marketing for digital-first programs
• Dispute and chargeback servicing

Maintaining both digital and physical infrastructure adds another layer of expense. Only a small percentage of consumers want to go fully digital, and 68% use a real card for everyday purchases. So while consumers want to be digital-first in most cases, institutions can’t completely eliminate branch-related card services even as digital adoption grows.

What Smaller Banks Need to Get Right

Card program profitability often comes down to attracting cardholders who carry balances, tracking the right metrics, and budgeting realistically for program costs.

Smaller financial institutions can’t compete on rewards, but they can succeed through strategic partnerships or by leveraging customer relationships.