Life can look tough for community banks in the credit card business.

The 10 largest card issuers control 70% of card receivables, up from 55% three years ago. Visa U.S.A. and MasterCard International say they are enhancing services for large banks, but resources for smaller banks probably will remain the same. Mid-tier issuers are selling their card portfolios right and left, saying they lack the scale to turn profits with the product.

But to Linda F. Echard, who runs the credit card affiliate of the Independent Community Bankers of America, community bank prospects do not seem grim at all.

More banks (67) signed up with ICBA Bancard Inc. in the first four months of this year than during all of 1998, when 56 banks enrolled.

Community banks are "recognizing that the credit card is a relationship product, and they're embracing it again," said Ms. Echard, 48, who has been president and chief executive officer of ICBA Bancard for 10 years.

The 14-year-old, for-profit arm of the ICBA, based in Arlington, Va., assembles services for community banks to support credit and debit card issuing, automated teller machines, merchant processing, and other services.

The banks fund their own loans; ICBA, as an aggregator, gets discounts for the member banks group from such suppliers as Equifax Inc. and Fiserv EFT.

ICBA Bancard's 2,000 participants have an aggregate $1.1 billion of credit card receivables-a fly speck compared with Citigroup Inc., Bank One Corp., and MBNA Corp., each in the $70 billion range as of the first quarter.

But ICBA has a stronger presence and impact than its size might suggest. As the larger card issuers gain market share, the small-bank organization stays focused and speaks out.

This year, the trade group formerly known as the Independent Bankers Association of America urged the U.S. Department of Justice to drop its antitrust lawsuit against Visa and MasterCard.

In a letter to Assistant Attorney General Joel I. Klein, Kenneth A. Guenther, executive vice president of the ICBA, argued that Citigroup's recent shift of loyalties from Visa to MasterCard was ample evidence of the type of industry competition the Justice Department was seeking.

Ms. Echard said Citibank's move to MasterCard was "public evidence that the two card associations compete."

Last month, when MasterCard's board-which now includes a Citigroup executive-gave a green light for banks to experiment with putting the association logo on the back of cards, ICBA Bancard cried foul.

"The movement of some of these larger institutions' downplaying the brand is suicide," Ms. Echard said.

The acceptance marks of MasterCard and Visa are seen as far more important to small banks. Ms. Echard said the branding aspirations of large issuers like Citibank will "do harm to themselves" and "cause harm to everyone who's involved with the (association) brand."

In the face of the giants, ICBA Bancard opened a federally chartered, limited-purpose credit card bank in St. Petersburg, Fla., last year. TCM Bank - the letters stand for "total card management"-was meant to "add another competitor to the consolidating credit card market by ensuring community banks of any size can participate," according to an ICBA press release.

TCM underwrites and manages credit card programs for banks too small to do it themselves, though Ms. Echard said some larger community banks also have chosen this option.

Ms. Echard said TCM Bank differs from other agent bank programs because it is controlled by a community banking organization that by design will not pose a competitive threat.

MBNA runs a big agent banking program, and even Citigroup has gotten into the business. Ms. Echard said small banks that work with those institutions "put their customers in danger of being cross-sold.

"If you give (the portfolio) to a competitor, they have at least 12 opportunities a year with a monthly statement to cross-sell a checking account, a home mortgage-anything," she said.

Some observers view this as a scare tactic.

Ronald T. Urquhart, who used to run the card portfolios of People's Bank of Bridgeport, Conn., and Webster Bank of Waterbury, Conn., said it is "absolutely untrue" that agent card issuers go after their customers' customers.

A large bank is not going "to risk all the good will they've established over the years to go after some little bank's customer base," said Mr. Urquhart, who formed his own consulting business, RTU Bancard Consulting in Cheshire, Conn., after Webster Bank got out of card issuing in April 1998.

Mr. Urquhart advocates agent banking relationships for community banks that want to keep their names on a credit card. He said the business is getting harder than ever for banks with modest programs.

"The risk factors-and being able to compete against the big boys-are tough," Mr. Urquhart said. "I've seen more small banks selling portfolios and wanting to get out."

Agent banking is thriving. MBNA has more than 700 agent relationships, amounting to $8 billion of loans.

Small banks are "not getting out of the (credit card) business, they're doing it in a different way," said Brian Dalphon, senior executive vice president at MBNA in Wilmington, Del.

He said about 50 banks signed for MBNA's agent program in 1998, half of them institutions with less than $300 million of assets.

TCM Bank has $20 million in receivables and about 120 banks. (Despite the advent of TCM Bank and the growing popularity of agent bank programs, the vast majority of community bank card balances remain on banks' books.)

Mike Potter is president of ACB Partners Inc., a subsidiary of America's Community Bankers in Washington that selects vendors for community banks and negotiates price breaks. He said there is a big difference between community banks-which view credit cards more as relationship-builders than profit-drivers-and a midsize bank such as Webster that becomes concerned mainly about profitability and reaches a point where margins dictate leaving the business.

"There is a catch phrase in the industry, 'marketing to a segment of one,'" Ms. Echard said. "Community banks can do that inherently because they know their customer."

James Shanahan, a partner in the Newark, Del., office of Business Dynamics Consulting, said community banks "have the true relationships that the big banks all long for."

"Community banks are hanging in there" with cards, he said. "It's one of the miracles of this business that banks with 5,000 accounts can have a profitable business, when banks with a million accounts claim they can't compete because they don't have economies of scale."

Mr. Potter said banks have had to take a hard look at the role of credit cards in their operations.

If cards are to become "a major piece of your business, you have to get volume," Mr. Potter said. "If you're going to offer it more as a relationship-development piece, that strategy lets you move in a different direction and still operate at a small size."

Charles T. Doyle, chairman of Texas Independent Bancshares in Texas City and a member of Visa's board, said, "I see some (community bankers) dropping out and some coming in."

Mr. Doyle's $340 million bank issues its own 5,000 credit cards and plans to start marketing outside its own customer base.

From his perspective as a Visa director, Mr. Doyle said it is becoming "real difficult for the smaller institutions to have a level playing field with the associations."

Ms. Echard said it is normal for any organization to "recognize the contributions of some of their larger members." She said smaller banks "do get recognition" in the card associations. Like Mr. Doyle with Visa, David Ballweg, chairman of TCM Bank and president of Community State Bank of Union Grove, Wis., serves on a MasterCard strategic planning committee.

Ms. Echard attributed the growth of ICBA Bancard not to moves by Visa or MasterCard, but to the rise of electronic commerce, which she said has renewed interest among community bankers in offering credit cards.

She said 90% of on-line transactions are made with a credit card, and community bankers view the product as likely "to emerge as the transaction account of the future."

The popularity of on-line shopping may mean that credit cards will displace checking accounts as "the core relationship we associate with our bank," Ms. Echard said.

Ms. Echard was hired by the ICBA in 1985 as a consultant to check the feasibility of setting up a card services program at ICBA. At that time, the fledgling organization's gauge of success was the ability to attract 75 banks to its credit card program, Ms. Echard said.

In 1989, after running the card services program as a consultant for four years, she became president and chief executive officer of what was then IBAA Bancard.

Earlier in her career, Ms. Echard spent 10 years at Visa in several marketing and operations posts.

Ms. Echard said community banks offer alternatives for consumers, providing an important balance to card industry heavyweights.

"We may be small, but we make a lot of noise and keep the larger institutions more honest," she said.

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