The Independent Bankers Association of America plans to establish a limited credit card bank by the end of the third quarter of next year to help banks that don't have the desire or the resources to be independent issuers.

The institution will manage the card portfolios and handle risk management issues, such as chargeoffs, fraud, and bankruptcy, through IBAA Bancard Inc., the trade association's 11-year-old card and payment services subsidiary.

The IBAA said the charter application will be filed soon to create the limited institution, which is not yet named.

"Backing into it, we might look like a card issuer, but we are doing this to provide smaller banks with credit card services in an environment where their customer will not be cross-sold," said Linda Echard, president and CEO, IBAA Bankcard.

When small banks become agents of competing banks they risk losing customer relationships, one banking product at a time, Ms. Echard said.

"This is a national response to what is happening in the competition and consolidation in the credit card industry," said Edward E. Furash, chairman of the Washington consulting firm Furash & Co.

"Community banks need to have the marketing prowess to compete with the bigger issuers as well as having the economies of scale," he added.

IBAA Bancard currently provides services for approximately 1,800 community banks that issue their own cards. The average asset size of these institutions is $130 million, while the average asset size of the IBAA's 5,500 members is $46 million.

"It is a good program for small banks and addresses a problem that a lot of banks are facing," said Richard Mount, president of Saratoga National Bank in Saratoga, Calif. Mr. Blount said his bank runs a card program that, because of its size, is "only marginally profitable."

"We only issue about 350 cards," he said. "Now I can sell the existing portfolio to IBAA Bancard, and with them assuming all personnel and management costs, still be able to remain competitive by participating in the credit card market."

The program is targeting smaller, community banks. But the IBAA thinks that, after current contracts expire, larger banks might look at the program as being more protective of their customers and better designed to their needs.

Dave Ballweg, president of Community State Bank in Union Grove, Wis. and chairman of IBAA Bancard, said the more significant targets are banks that are offered similar programs by providers that might be long-term competitors, with terms that offer less control of the customer base.

IBAA Bancard expects community banks to use the program to develop their card portfolios, with the opportunity to take over and directly fund the portfolios in the future.

"Other alternatives are available, but major processors have limited interest in small business," said Anat Bird, chief operating officer of Roosevelt Financial Group in St. Louis. "It makes sense to aggregate the interest of small banks in all areas, not just in the credit card business."

The IBAA seems to be looking into the future.

"We had to form a bank with uniform disclosure," Ms. Echard said, "and be able to have some consistent portfolios that we could perhaps securitize down the road when we grow."

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