Many community banks offer credit cards just to round out their product lines. But at the nation's fifth-largest black-owned bank, the emphatic emphasis is on improving customers' access to credit and capital.
Liberty Bank and Trust Co. of New Orleans has only issued credit cards for three years. But the experience has helped the 25-year-old institution flourish: Through heavy marketing and a patchwork of affinity programs, the card product has helped Liberty grow from $50 million of assets in 1993 to $135 million today.
"We think small community banks are going to have to be in the credit card business in order to survive," said Alden J. McDonald Jr., president and chief executive officer. "This piece of plastic is the key to the door of everyone's pocketbook and everybody's checkbook."
Liberty caters largely to the minority populations of New Orleans and Baton Rouge, La. Its working-class customers are people who have historically been denied bank credit and who tend to "live from paycheck to paycheck," Mr. McDonald said.
Mr. McDonald, 53, recalled that when he was a child, "banks did not extend themselves to the black community and as a result my parents had to borrow money from finance companies, which charged an exorbitant amount of interest."
As he personally has prospered, Mr. McDonald has sought to impart the lessons he has learned and to show others how to improve their lives through homeownership and financial planning.
Credit cards are a cornerstone of his approach. The bank charges minimal fees, caps interest rates at 16.9%, and says it believes strongly in giving people with marginal credit histories a second or third chance. It is a personalized approach that looks well beyond credit scoring.
"With someone who has bad credit, you can really analyze the credit report to determine whether or not they just don't pay their bills, or if they had a mishap," Mr. McDonald said.
By viewing cardholders as long-term bank customers, Liberty aspires to blend noble ideals with practical business tactics.
"We hope to cross-sell our credit card customers," Mr. McDonald said. "We want to finance that person's home, that person's car. We want to take care of that person's needs. So anyone who is developing a relationship with us through our credit card program, they have a lot more to lose if they mess up on just their credit card, because we can be their financial future."
The bank's holistic outlook manifests itself in many ways. For instance, as both a public service and a marketing tool, Liberty Bank broadcasts a weekly half-hour television show of community news. In a regular segment called "Financial Freedom," bank employees give tips on saving and investing.
In a more unusual move, Liberty Bank has sought to touch customers through their houses of worship, offering affinity cards through churches and religious organizations. At the largest church in New Orleans-the Greater St. Stephen Full Gospel Baptist Church-15,000 members can apply for cards that donate a percentage of transaction proceeds to the church.
Liberty also issues a card for the church's national organization, the Full Gospel Baptist Church Fellowship. And it is negotiating deals with other nonprofits: Plans are under way to issue a card for the National Association for the Advancement of Colored People.
Mr. McDonald said he sees many "market niches" for community banks that want to make a name in credit cards, including people with blemished credit records and recent college graduates.
"We think we can be a leader in this area of screening out the people who really don't deserve credit cards," he said. "I'm talking about people who are just out to (take advantage of) the economy, versus people who are really trying to make ends meet and to improve their quality of life."
Liberty tries to be generous internally as well as externally. Bank employees' children who are older than 16 and enrolled in school are guaranteed summer jobs-not as go-fers, Mr. McDonald said, but as part-time tellers.
The bank makes available 24-hour anonymous telephone counseling for employees. And every bank employee with more than five years' employment is assured the chance to buy a home. "If they don't have any money down, we will work it out," Mr. McDonald said.
"It's a family affair," he added. "Our people are not clock-punchers."
Liberty's fortunes have undulated over the last quarter-century. An oil bust in the late 1980s that put many Louisiana banks out of business sent the bank on a cost-cutting spree: Everything from paper clips to paper was rationed and recycled, but nobody was laid off.
To recover, Liberty Bank shifted into acquisition mode. One of its first purchases, in 1992, was Corpus Christi Federal Credit Union.
The strategy seems to have paid off: Last month, Liberty Bank was named financial company of the year by Black Enterprise magazine.
Though times are flush, Mr. McDonald has some gloomy predictions. "I think the country is going to go through a change on credit card credit-we have a lot of consumers overloaded," he said. "In the future, we will see more problems with delinquencies."
Liberty Bank has foreseen rising delinquency rates for a while, Mr. McDonald said, and has scaled back card marketing accordingly. In the next move, he said, "we are going to tighten up on our credit criteria."
On the bright side, Mr. McDonald is keen on smart cards, predicting that the plastic cards with embedded computer chips will make their way into customers' wallets in two years.
Liberty Bank is a member of the National Bankers Association, a group of 54 minority-owned banks that pools resources. A spokesman for the organization, Monteith M. Illingworth, said there has been tremendous growth among minority-owned banks, spurred in part by technology.
As important as technology may be, Mr. McDonald likes to stress the old- fashioned side of community banking.
"If we show our customers how to borrow to get what they want, those individuals are going to remember that," he said.
"They will support you. They will have their kids, aunts, grandmothers, and cousins bank with you. That's how we build our bank."