With nearly $2 billion of assets, Principal Bank is now looking for ways it can expand its services as an insurer-owned thrift.
The 5-year-old direct bank has outsourced its credit card portfolio and is considering adding business banking services as it upgrades its systems and tries to serve more of the 13 million customers of its parent, Principal Financial Group.
"We are looking at Principal Bank as the potential glue to tie the relationship together for customers of Principal Financial," said Barrie Christman, the president and chief executive officer of the Des Moines thrift.
Principal Bank operates primarily on the Internet and by telephone; it has no branches and no plan to open any. The thrift had 85,000 customers at yearend, mainly individuals who already use Principal Financial's retirement and investment services, life and health insurance, and other products.
Last Thursday Principal Bank said it had sold its $23 million credit card portfolio to InfiCorp Holdings Inc., a specialty credit card company that forms partnerships with banks. The companies formed an alliance under which InfiCorp could market a variety of Principal Bank-branded credit card products to current and prospective customers of the thrift.
This arrangement is expected to let bank customers select from a wider array of credit card products, including platinum, gold, and classic cards, with a variety of pricing features as well as travel and cash-back reward programs.
"It really ends up being more of a product and pricing opportunity for consumers," said David Merlo, a vice president at the thrift and its chief marketing officer.
"When we ran the card business, we only had two card choices, classic and platinum. We are now adding a gold card, but more importantly, customers will be able to self-select what kind of pricing the cards will have," he said.
People who, for example, qualify for a platinum card can choose between a low-rate card or one with travel and cash rewards, Mr. Merlo said. On its own, Principal Bank was not able to offer this kind of variety, he said.
"We wanted to clearly stay in the business," Ms. Christman said. However, the thrift realized that because of its relatively small size it could not offer the breadth and depth of card products and features to compete with larger banks.
Ms. Christman said Principal Bank had "a very high-performing portfolio" of cards. "In some ways we were probably overly conservative," she said, in picking the customers to whom credit would be offered.
A larger, more efficient, and more experienced provider like InfiCorp has the ability to "to dig a little bit deeper" into Principal Bank's customer base, Ms. Christman said.
Though Principal Bank has been operating for five years, Ms. Christman noted, it has not heavily marketed its credit card products. Through joint marketing with InfiCorp, the thrift foresees a "tremendous opportunity" to expand the business line.
The bank has about 23,000 cards in circulation, she said. Principal Bank is one of a several thrifts started by insurers, including State Farm Group, Allstate Corp., ING Groep NV, and USAA. These thrifts have begun to accumulate enough assets to make them significant players, and those owned by ING and USAA are among the country's 20 largest.
"Good growth is a real positive and a challenge at the same time," Ms. Christman said. For one thing, the growing size of the thrift means that it requires more sophisticated technology, especially since it relies so heavily on its Web site.
"We're in the process of upgrading all of our systems because we are going to be outgrowing them," Ms. Christman said. The thrift is developing more flexible systems and programs, she said, with the plan of expanding the products and services it offers.
Another key potential initiative is business clients.
"We're going through an evaluation right now of the role Principal Bank might be able to play in business banking," Ms. Christman said.
Because Principal Financial is a large 401(k) provider, its thrift is looking at ways to further serve the companies that use the parent's retirement plans, she said.
The thrift is just now looking at what it could offer these clients and so has no specific plan or timetable for offering such services, Ms. Christman said. It is still searching for "the appropriate niche" for it in business banking, she said.
Obviously, she said, small businesses that need a lot of branch services would not be the ideal candidates for business banking with Principal Bank. But among other potential opportunities to serve are the payroll needs of some businesses, she said.
"Principal Financial is in the life-event business … , but Principal Bank is in the transaction business," Ms. Christman said.
Already, the thrift targets people who have transactional needs related to life events - like moving money in or out of a retirement plan because of a job change or retirement, Mr. Merlo said. It can play a role in retaining assets for Principal Financial, he said.
Extending those kinds of transactional capabilities to the small and midsize business customers of Principal Financial is an obvious next step, Ms. Christman said.
