Community bankers are proving to be formidable in price competition against national credit card issuers, according to a report from IBAA Bancard.

The card affiliate of the Independent Bankers Association of America says its members charge lower annual fees and interest rates than regional and national banks.

The 1,600 banks in IBAA Bancard, which have joined to obtain group pricing and other benefits, collectively rank 29th among Visa card issuers and 40th among MasterCard issuers.

Average annual fees on IBAA Bancard standard cards is $15.38, compared with the August weighted average for national issuers of $16.84 as compiled by RAM Research Corp., Frederick, Md.

Average rates in the IBAA program are 14.67%, compared with 17.24% for national issuers.

IBAA Bancard statistics show that smaller issuers lag in average balances but their delinquencies as a percentage of outstandings are lower than national issuers'.

"The numbers show that our bankers are able to consistently offer better pricing than their national counterparts," said Sarah Brachman, communications associate for IBAA Bancard.

"Generally, smaller issuers tend to offer a plain vanilla card that doesn't offer a lot of enhancements," which allows for competitive pricing, said Robert B. McKinley, president of RAM.

Low Overhead

Banks that work with the IBAA have the advantages of shared costs and experience, Mr. McKinley added. Their overhead is low and they do not spend much on marketing, relying more on word of mouth.

"There's a lot of ways they can out corners," Mr. McKinley said. "They can also be conservative in the amount of credit they offer."

Independent bankers "can make their own pricing decisions," Brachman said. "Our banks can afford to be creative. They often have a personal relationship with their customers. They know if they're creditworthy, so they can give them a better rate."

Best Rate in Town

In July, First Merchants Bank, a $600 million-asset institution in Muncie, Ind., began issuing standard MasterCard and Visa cards with no annual fee and a 14.88% annual rate. Its Visa gold has no annual fee and a 13.56% rate.

"Our rate is the best in town, other than the credit unions," said Jeff Parsons, sales manager for bank cards. "Frankly, we think it's pretty darn competitive with the national banks."

Mr. Parsons said that in two months, through direct mail and local advertising, the bank has opened 2,500 accounts, with $2 million in receivables. Customers like the pricing and the bank's service, he said.

Another bank reports similar success, despite having an annual fee.

The $56 million-asset American National Bank in Kennewick, Wash., offers a Visa classic with an $18 annual fee and a Visa gold at $25. Both have a 13.92% annual percentage rate.

"We lose to the credit unions," said Becky Freemire, a customer service representative. "But we're competitive with local commercial banks."

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