Yes, You Can Compete with the Major Card Issuers. But It Takes Creativity and Focus.
The credit card business remains dominated by a small group of big issuers. But small issuers can still find profitable slices of new business.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Andrew Davidson calls it "the $5 billion club." Among the largest credit card issuers, three companies — JPMorgan Chase, Capital One and American Express —spend at around that figure to promote their card offerings..
"Budgets like that make it very difficult for the rest of the industry to compete," says Davidson, senior vice president and chief insights officer at Comperemedia, a Mintel company. "To a degree that cascades down and everybody steps up their game to a certain level. But of course that’s not possible for everyone."
Major issuers can promote heavily in every form of media, from the latest digital platforms to the old standby of direct mail, still very much a thing for cards. They can slice and dice markets with options and tiers that can be dizzying to the shopper, and add digital elements that take their offerings way past the traditional card products. And then there are rewards, which go with credit cards today like bacon goes with eggs.
The stakes for every player: Getting a piece of the increasing demand for credit card credit, in terms of cardholders as well as volume and receivables, as well as fees where they are generated. Regional banks, community banks, credit unions and fintechs all face competition with very deep pockets.
Overall, success for these players hinges on five key factors, according to Davidson. "It’s about being more targeted. It’s about being more scrappy. It’s about playing to your strengths. And I still think it is also about innovation," he says. To these, add another, especially if it’s a national promotion your institution has in mind: "You have to have a value proposition that meets everybody’s needs."
These factors — and learning to parlay "local advantage" — can mean different things at different industry levels but one thing is in common.
"If you haven’t got $5 billion to spend on marketing," says Davidson, "you have to be a little more creative." Increased creativity can run the gamut from seeking out niches large players have missed (or are too large to tackle) to finding markets that are ripe for new ideas.
Some institutions, especially on the credit union side, try to play the same game as the big players and it doesn’t work, says Tony DeSanctis, senior director at Cornerstone Advisors.
"You’ll see a few of them try to replicate — or even beat — the big guys from an offer perspective," says DeSanctis. "That’s a really unsustainable model." Large players have the portfolio size and credit algorithms to play that game. Smaller players just don’t, he says.
Huntington Bank Takes a Secured Route to Growth and Future Growth
Among examples that Davidson points to is a year-old secured credit card program from Huntington National Bank that the regional bank is relying on as a part of a broader push to build its payments. During its February investor day, the bank reported that it had seen 82% CAGR in new credit card accounts between the fourth quarter of 2022 and the final quarter of 2024. Huntington is aiming to double the size of its card portfolio and to double credit card spending by 2030.
"Eighty percent of the interactions our customers have with us are payments- related," Amit Dhingra, chief enterprise payments officer, told analysts.
To date, Huntington’s secured credit card has only been offered to consumers who are already customers of the bank, specifically, people who have Huntington checking accounts. The card is one of the first secured cards offered by a regional bank to feature no annual fee as well as cashback rewards. (Cardholders receive 1% cashback on all charges.) Other features include a one-day late fee grace and free online access to FICO scores.
Dhingra says that the secured card has driven significant growth in its first year while the bank has maintained credit discipline. Some cardholders have graduated to unsecured cards in as little as six months, based on their payment performance, he says in an interview.
Industry statistics indicate that 80%-90% of secured cards customers tend to stick with the institution that granted them their secured card when their credit improves, according to Dhingra. Ongoing graduation into Huntington’s other cards, with the opportunity for deeper, lifelong relationships, is one of the bank’s goals for the program. Dhingra says the secured card is off to a strong start — and some cardholders graduate in as little as six months.
One of the benefits of graduating to the bank’s basic cashback card is that the rewards percentage increases from 1% to 1.5%. Other unsecured options include a card paying triple rewards on one category representing the holder’s most frequent spending and another that provides no rewards but which carries a lower interest rate than the other options.
"We have a core set of the four cards now, which I think actually caters really well to the majority of our audience," says Dhingra. Further product development could come along as customer needs evolve, he adds.
Read more: Just Rewards: What Small Banks and Credit Unions Need to Know About Consumers’ Favorite Product
Use Your Knowledge of Customers to Build Credit Card Bases
Huntington’s targeting of existing checking customers who want to establish or rebuild credit with a secured card illustrates a key tactic for smaller issuers, according to DeSanctis. He points out that among the majors, credit card operations are so large that they typically function independently of the same institutions’ retail banking operations. That works for these large operations, but for smaller players doing so misses a key opportunity.
The opportunity has two main aspects, according to consultant DeSanctis.
The first comes on the credit granting side. A mistake many smaller players make is copying the large players’ practice of driving credit decisions off FICO scores. DeSanctis calls this "super conservative" underwriting that ignores the data that the smaller player has gained through being a consumer’s primary financial institution, where that is the case.
If somebody’s been with your financial institution for 15 years and have never had an overdraft in that time, and their average deposit balance is $3,000, it’s a mistake to simply base the initial decision to provide a card, and then the size of the credit line, on the FICO score alone, says DeSanctis.
You know them better than that, he argues.
"So, if the matrix says that at a 680 score I can only give the applicant a $2,000 credit line, I’m not going to do that — I’m going to be offering a higher line," says DeSanctis. Experience with the customer has shown they can be trusted with more credit, which offers the institution the potential for higher credit balances.
The other side of being a local provider is that the customer already knows how to incorporate the institution’s card product into an integrated relationship, rather than treating it as an isolated offering.
"Talk about the credit card in the context of the consumer’s overall relationship with you," says DeSanctis. He says successful smaller issuers like Lake Michigan Credit Union and Chicago’s Consumers Credit Union are adept at pricing arrangements that provide incentives to run more transactions through their offerings in exchange for better fee structures or interest rates.
In today’s financial scrum, DeSanctis adds, there are elements that must be included to make a minimum viable product package — access to digital wallets, estatements, instant rewards redemption and more. But bundling can make it unnecessary to match rewards with the giants.
In these ways, "if they already bank with you, the tie goes to the runner," says DeSanctis.
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Taking a Page Out of Bilt’s Evolving Book
Several of the experts interviewed point to approaches taken by Bilt, the fintech, as steps that smaller issuers can emulate.
Richard Crone, principal at Crone Consulting, LLC, suggests that financial institutions can include a new credit card account when a consumer obtains a mortgage, car loan or other consumer credit. (Bilt itself is preparing to expand its rewards program, that incents payment of rent via credit card, to mortgage payments in 2025, according to a yearend letter to Bilt members: "Whether you’re making monthly payments or refinancing, you’ll soon be able to earn points on your mortgage payments.")
Crone suggests that rewards programs could be set up to include not only the loan repayment on the credit card, but to require additional charges to the card during the monthly cycle to qualify for a discounted loan rate for that period, or perhaps on the credit card’s rate.
This is the kind of product development Bilt has engaged in, and Crone thinks there are elements to emulate.
"Banking has to start thinking like a scrappy fintech startup," says Crone. "The incentive can be on an order of magnitude much greater than cash back."
The truth is, many institutions are already doing this, but in another part of the house. Crone points out that it’s not unusual for banks and credit unions to offer discounts on loan interest rates if borrowers agree to pay via automatic debits from deposit accounts through the automated clearing house. Moving the payment to a credit card that’s provided by the lender is essentially an evolution of this idea, with the benefit of a cross-sold second product. (Crone points out that a detail of "plumbing" to make the arrangement work is for the lender to designate itself as the "merchant of record" for the credit card transaction.)
In this way the smaller issuer can counter major issuers’ lavish rewards programs but in a way that feeds business back into the bank or credit union.
"Don’t waste the touch point by not opening up some additional account," says Crone.
In many cases the enrollment in an additional credit product would have to be built into the scripts used by third parties. Many auto loans for both banks and credit unions are made through indirect lending — loans made at the dealer finance department or through online markets, rather than across a retail banker’s desk in a branch.
Read more: Should Banks Beware Credit Score ‘Grade Inflation’?
Think ‘Local’ — and Be Open to New Definitions of It
The credit card business has more than one side. DeSanctis says the merchant side of the business offers an advantage to the smaller player.
"It’s a little bit of a logistical challenge and a heavier lift," says DeSanctis, "but it can create goodwill on both sides of your balance sheet if you can strike payment partnerships with your commercial relationships."
Here’s what DeSanctis has in mind. Say there’s a ten-location restaurant chain in a key city or state in the bank or credit union’s market that is known for great ice cream sandwiches.
"You could collaborate with them to offer a free ice cream sandwich in every quarter in which the consumer uses the bank’s credit card at the chain 20 times," says DeSanctis. This serves everyone — the restaurant gets patronage, the financial institution gets card volume, and the consumer gets a free dessert.
Ideally, the financial institution can team up with a local brand that has a near-cult following, DeSanctis adds. This will give the bank or credit union the opportunity to bask in the "brand halo," he explains. Even better is such a brand that represents high-frequency purchasing.
In pursuing "community," institutions can think beyond geography, as well. Crone notes that credit unions, especially, focus on non-geographic communities, often by definition. Beyond that, he sees communities organized by social media influencers, encouraging social commerce, as another opportunity for smaller credit cards to find niches for membership and volume.
"So far I haven’t seen anybody leveraging influencers and creators to promote a card product," says Crone.
There is also the opportunity to create communities through the fledgling retail commerce media concept, pioneered in this country by Chase Media Solutions and more recently by PayPal. This type of program turns the financial institution’s cardholder base into a community of sorts that the merchant can promote to, with the bank or credit union providing the credit card access to purchasing within the community.
It’s still early days on that front and little has been heard about the Chase effort since it launched last year.
"Word on the street is that it’s active and doing well for their customers, and that consumers like it," says Shawn Conahan, chief revenue office at Wildfire Systems, which works in the rewards space.
Conahan believes such programs can take scale to succeed — one in three Americans are Chase customers, he points out.
But increasingly, experts interviewed say, smaller issuers have to break the mold of simply throwing more marketing dollars into traditional promotions. They have to spend more strategically, and loyalty programs and tie-ins with local players are places to invest.
