Abstract
This report examines the little-reported marketplace of small credit card
issuers. The small issuer market is large indeed in terms of the number of
players, with over six thousand institutions having credit card receivables
less than $100 million on their balance sheets (between FDIC-insured banks and
NCUA credit unions). Plus, there are perhaps an additional 2,000 institutions
that have sold their portfolios and continue to function as agent banks.
Given the number of prospect institutions, this is a competitive and desirable
market for vendors providing various outsourcing services.
Topics explored include:
- While the U.S. card issuer market is highly concentrated among the top 10
issuers, over 8,000 direct issuers with less than $100 million in card assets
remain active.
- Credit unions are twice as numerous as banks among direct small issuers.
- Credit card assets have decreased in importance to banks largely due to
the growing importance of real estate lending.
- Small issuers can be segmented according to their strategic direction:
committed issuers, portfolio sale/agent bank partners, and those re-evaluating
their direction toward one of these approaches.
- The menu of outsourcing services available to support small issuers is
extensive and helps deliver competitive products and services.
The study examines small issuer segments including committed direct issuers,
agent banks, and those re-evaluating their credit card strategies. On the
vendor front, segments of Processor/Outsourcers,
Processor/Outsourcer/Portfolio Acquirers, Aggregators, and Specialty Portfolio
Acquirers are described.
Ken Paterson, Director of the Credit Advisory Service at Mercator Advisory
Group and the author of this report comments that, "to be charitable, credit
cards are a difficult sphere in which to compete, and any issuer not in the
top tier needs to be thinking about the optimal combination of in-house and
outsourced capabilities that will deliver competitive product and a
competitive return, while most importantly serving the needs and interests of
the cardholders. This client view should not be ignored. Most small issuers
are retail-focused organizations that want to offer credit cards as part of a
client relationship. Delivering product capabilities and cardholder servicing
that support their brand is typically a top-of-list concern."
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