Regional and large community banks have proven they can persuade customers to add new plastic, emblazoned with the banks' own logos, to their wallets. The question for these issuers is: how much farther can they go with credit cards?
Credit card loans have taken off in recent years at numerous banks, and third-quarter figures show that the business continued to boom. At least three dozen banks reported year-over-year increases in credit cards.
The growth rates can be gaudy at institutions that started from a tiny base. The $64 billion-asset Huntington Bancshares said credit card loans grew 863%, to $106 million, in the third quarter.
Credit card loans remain a healthy business for banks that were already well established in the market, too. The $220 billion-asset TD Bank said they rose 22%, to $1.6 billion, in the third quarter. At the $66 billion-asset USAA, credit cards grew 6%, to $17.1 billion.
Some bankers acknowledge that the success has gotten them thinking big. When executives meet to talk about credit cards, the idea often comes up of expanding the business to take on the biggest credit card issuers.
"We think about it," said Paul Wible, senior executive vice president and the head of national finance at Bank of the West in San Francisco.
The $69 billion-asset company said credit-card loans rose 7% to $123 million in the third quarter.
It would be misguided for regionals to go head to head against the dominant issuers like Capital One Financial and American Express, said Sameer Gokhale, an analyst at Janney Capital Markets.
"The regionals don't have any illusions of competing with the biggest card issuers," Gokhale said. "But they are increasingly realizing that they were leaving a lot of money on the table by not using the credit card as a product to offer to their most loyal customers."
Bank of the West is content, for the time being, with selling plastic only to its existing customer base, Wible said. It still has a number of areas, including its wealth management unit, where it can expand credit card offerings.
"We think we've got several years of continued growth before we have to worry about going outside our existing distribution or branch network," Wible said.
Regional banks want to use credit cards largely as a way to develop brand loyalty, which is a worthwhile goal, Gokhale said.
"The credit card is one of the most important s of the banking relationship that a customer has with us," Wible said.
It is also viewed as a way to cross-sell other products, like residential mortgages or car loans.
"Almost 40% of our customers now carry our credit card. That was 22% in 2009," John Stumpf, the chief executive of Wells Fargo, said in an Oct. 14 conference call with analysts. "And they do other things with us."
Some experts are skeptical of the ability of banks to use credit cards to cross-sell other products. Some banks have had success in cross-selling, such as Discover Financial Services selling personal loans to its existing cardholders, said Nick Clements, a cofounder of MagnifyMoney.com, a consumer website for comparing online and retail banking products. But, as a general rule, it is a difficult proposition.
"If you're a Citibank credit card customer, to convince you to open a Citi retail account is very hard," Clements said. "It's also very hard to cross-sell credit cards with wealth management."
Still, regionals and other banks should still try to expand credit cards, Clements said. Both Wells and SunTrust Banks have developed credit-card products that are appealing to customers and easy for branch employees to sell.
There is room for more banks at the credit card party, Gokhale said. Plenty of regionals and large community banks remain on the sidelines and have no credit card loan portfolios, including $110 billion-asset MUFG Union Bank and the $69 billion-asset Comerica.
It is likely that most of those banks are taking a hard look at getting into the credit card game, and many will probably take the plunge soon, Gokhale said.
"I would not be surprised if the other regional banks expand into cards," Gokhale said. "It's an attractive asset class, and you can offer them for more reasons than purely stand-alone profitability."