THOUSAND OAKS, Calif.-More banks are likely to follow in Regions Financial Corp.'s footsteps and bring their credit card portfolios back in-house as the worst of the recession's damage recedes and they look to increase revenue.
As issuers' capital levels improve, loan-loss reserves and defaults decrease and the overall quality of borrowers continues to improve, the stakes are changing for card issuers, Robert Hammer, the chairman and chief executive of the credit card consultancy R.K. Hammer here told American Banker, an affiliate of Credit Union Journal. "We're likely to see a movement back toward 'insourcing' as card issuers realize certain new advantages of marketing cards under their own roofs."
Over the past decade, when the credit card industry relied heavily on direct-mail marketing and promotional pricing, many issuers handed their portfolios off to large operations to maximize efficiency. Such deals usually include noncompete contracts that typically endure for seven to 10 years, and as those come up for renewal more issuers may follow Regions' lead in rethinking their portfolio management strategies, Hammer said.
Citing a desire to expand its credit card business as part of its overall financial offerings, Regions on June 6 announced an agreement to pay $1 billion this quarter to purchase its branded card portfolio of 500,000 accounts from FIA Card Services, a Bank of America Corp. subsidiary.
Potential Means To Cross Sales
The deal could provide Regions with a way to cross-sell more products because the card accounts are already Regions' customers. "They have generally two to five services with us already," David Turner, SVP/CFO at the Birmingham, Ala., bank. "It's not just going to buy a credit card portfolio. We're getting our customers back. We think then that gives us the ability to really sell through our remaining customer base credit cards."
The move could also help Regions cope with lost revenue under the Fed's pending caps on debit interchange fees, Turner said.
Now that most troubled accounts have been flushed from portfolios following widespread account closures over the past couple of years, other issuers are likely to retool their credit cards and integrate them more closely into their overall bank offerings instead of marketing them as stand-alone products, Hammer said.
"The wave of regulatory challenges to marketing cards has eased with the implementation of the Credit Card Accountability, Responsibility and Disclosure Act, and issuers feel less of a threat to their business models. Some of these banks have large branch networks they can harness to market cards, and they can also capitalize on their existing branding operations to get better results."
