How to Compete in the Small Business Card Space

Small businesses are increasingly reliant on credit cards, signaling an opportunity for community banks to build business. Sixty-two percent of small businesses report using a credit card on a regular basis, and nearly 29% sought a new credit card over the course of a year, according to the most recent findings from the Federal Reserve Banks’ Small Business Credit Survey. 

“Credit cards are an unsecured loan,” says Kari Neckel, vice president of payments and technology policy at ICBA. “There is no easier way for a small business to spend the loan than with a business credit card issued from the community bank.” 

Identifying the right card program model

Credit card programs require thoughtful orchestration. At the highest level, community banks must decide if they want full programmatic control, and with it the internal risks and liabilities. Or they might prefer to lean more heavily on a partner to mitigate risk and support operational requirements. 

Consider Lake Ridge Bank in Middleton, Wisconsin. The $3.1 billion-asset community bank owns and services its own credit card program, giving it complete strategic oversight and maximum flexibility to evolve its offerings as needed. 

“A full banking relationship is one of our mantras, and our card program offers an opportunity for us to [expand] that relationship beyond the loan and the deposit functions at the bank,” explains Scott Ducke, executive vice president and chief operating officer at Lake Ridge Bank. “I sit on the loan committee, and it’s great to be able to say, ‘Hey, we can approve you right here on the spot as you’re moving your relationship over. We’ll also approve you for X dollars in credit card availability.’”

Ducke notes that by having the program in-house, the bank can control risk to some extent by employing its knowledge of its clients. 

“We’ve already got that banking relationship,” he says. “[The program is] a perfect tool to mitigate that risk because we know our clients, and we know where their loans and their deposits are.”

Seeking support from a partner

Other community banks appreciate being able to lean on a partner provider when running a card program. That’s because when approvals, underwriting, correspondence, collections and support are handled in-house, they draw on internal resources and require additional oversight to ensure a safe, secure and successful program.

Citizens Bank of Las Cruces in Las Cruces, New Mexico, recently transitioned from an in-house program to a program supported by ICBA Payments and TCM Bank for those very reasons. Through this change, the $1.15 billion-asset community bank streamlined internal processes while launching a more competitive offering. 

“Handling credit cards in-house was challenging, as it was not allowing us to be as competitive as we could have been in the banking industry,” says Rhena Leitermann, senior vice president of treasury management and marketing at Citizens Bank of Las Cruces. “Now, we have three cards available to businesses that are specific to their needs, so they have flexibility on choosing what makes the most sense for them.”

Supporting small business needs with card programs

Small businesses depend on their cards. Data from Quickbooks shows credit cards serve as the number one solution for addressing cash flow problems. 

“A credit card gives a business six to eight weeks between purchase and payment, and when the balance is paid in full, that becomes interest-free working capital—something most small businesses rely on,” says Neckel. 

Small businesses are also looking for specialized services that allow them to conduct business more efficiently. 

For instance, rewards enable them to reap benefits, detailed transaction data helps with tracking and budgeting, and expense management enhances oversight over employee expenditures. 

“Small businesses like rewards, but they also like to have access to a platform that allows them to handle their employees’ expenses, close and add new employee accounts, change contact information in real time, offer customized reporting and provide easy access to all employee statements,” says Leitermann. 

Customization also speaks to small businesses in that it allows for ways to showcase their brand. For example, Lake Ridge Bank offers cards that can be designed and tailored for each of its small business clients—an offering that has become a key selling point. 

“We win a lot of relationships because of the custom cards,” Ducke says. “We take one in new business meetings, and prospective [clients] say, ‘I just want that card with my logo on it.’ They’re really proud about the card, instead of just using it as a tool to move dollars around for them.”

While the aesthetics are a nice-to-have feature, above all, Ducke sees credit card programs as an extension of the client relationship. 

“Being that community bank for all their needs is probably the biggest support I would have for having your own card portfolio,” he says. “We can really be part of that transaction and part of that relationship, rather than outside of it.”

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