Abstract
New research from Mercator Advisory Group examines developments in the often overlooked small issuer segment
Boston, MA -- Mercator Advisory Group's newest report assesses the odds
of a renaissance of direct issuing among small issuers along with factors such
as barriers to entry and competitive consumer challenges that affect those
odds. Next, the research reviews a number of the important outsourcing partner
firms serving this market.
As all financial institutions are faced with the challenge of growing their
revenue-generating assets and putting their excess deposits to work, many
smaller institutions are reexamining credit card lending as a growth
opportunity or as a new product. Others that may have previously sold their
card programs are again considering direct issuing. But will these new
interests be able to turn around the long decline in the numbers of small FIs
that directly issue credit cards? And what will these firms demand from their
processing/outsourcing partners to support the increasingly complex credit
card business?
“Considering the needs of small FIs to build assets, as well as the
excellent resources available to effectively support small credit card
programs via the processor/outsourcer community, the hopeful point of view
would suggest the potential for strong growth in the ranks of small issuers.
And indeed, we do hear from some processors/outsourcers that their pipelines
of new issuers are strong. On the other hand, the hurdles are high for small
FIs, and the established market trends are not positive,” comments
Ken Paterson, VP for Research Operations at Mercator Advisory Group and
the primary author of the report.
Highlights of the report include:
- The overall shift in small bank credit card issuers since 2006 (based on
combining the secular trend of consolidating financial institutions with
portfolio sales).
- Dominance of credit unions in the small issuer market and the portfolio
sizes they are more likely to maintain.
- Processors/outsourcers are key to maintaining small issuers, and have
developed a remarkable standard array of technological and cardholder support
capabilities.
- How and why providers are differentiating their service offerings.
One of the nine exhibits included in this report:
Sources: FDIC, NCUA,Mercator Advisory Group
©Mercator Advisory Group
This report contains 27 pages and nine exhibits.
Companies mentioned in this report include: CSCU, Discover Network
First Data Corporation, FIS, Fiserv, Jack Henry Associates, MasterCard, NEBA,
PSCU Financial Services, TSYS Program Solutions, and Vantiv.
About Mercator Advisory Group
Mercator Advisory Group is the leading, independent research and
advisory services firm exclusively focused on the payments and banking
industries. We deliver pragmatic and timely research and advice designed to
help our clients uncover the most lucrative opportunities to maximize revenue
growth and contain costs. Our clients range from the world's largest payment
issuers, acquirers, processors, merchants and associations to leading
technology providers and investors.
Table of Contents
Introduction
Is a Renaissance Dawning for Small Issuers?
- Not a New Problem
- Two Other Drivers of Decline
- Issuer Resurgence: A Real Trend or Just Industry Buzz?
- Barriers to Entry and Growth
- Success Factors for Small Issuers
- Competitive Consumer Challenges for Small Issuers
- Program Commitment: How Low Can You Go?
Outsourcing: Making Small Issuers Feasible and Successful
- It Takes a Lot to Be in This Business
- Vendors and Differentiation
- Other Stakeholders
Strategic Implications
- The Implications of a Shrinking Pond
- The Compliance Barrier
- Needed: More Than a Level Playing Field
- Processors/Outsourcers Move to High Touch as Well as High Tech
- Copyright Notice
Figures and Tables
- Figure 1: A Long-Established Trend: Decline in the Importance of Card
Lending at Small Banks
- Figure 2: In a Consolidation Environment, Bank Credit Card Issuers Have
Declined Faster Since 2006
- Figure 3: Small Banks Continue to Leave Card Issuing, While the Decline in
Credit Union Issuers Stabilizes
- Figure 4: Banks' Card Assets Are Heavily Concentrated with Large Issuers
- Figure 5: A Higher Proportion of Credit Unions Maintain Healthy Portfolio
Sizes
- Figure 6: Small Issuers' Competitive Challenges: Rewards and Pricing Are
Drivers of Card Selection
- Figure 7: Small Issuers' Competitive Challenges: Consumers' Shift to
Online Application Channels
- Table 1: Outsourcing Partner Core Competencies, Part 1
- Table 2: Outsourcing Partner Core Competencies, Part 2
