As national credit card issuers face higher delinquency rates, community banks are positioned to succeed not by scaling like the largest issuers, but by doubling down on what they do best: building and leveraging customer relationships. Relationship lending is more than just a community banking tradition. It is a proven strategy for reducing credit risk, enhancing returns, and fostering customer loyalty. Particularly in credit card portfolio performance, relationship lending is a true competitive advantage.
Value in Relationship Lending Data
Unlike national issuers that rely heavily on credit scores and automated decisioning, community banks bring something vital to the table: a relationship. They know their customers and their history. This knowledge stems from years of banking together across multiple products.
Three core dimensions make these relationships valuable:
- Length of relationship shows historical financial stability over time.
- Depth of relationship or the number of products a customer uses reflects financial engagement.
- Deposit amount provides important insight into liquidity and risk.
These relationship markers are not just indicators of loyalty; they are also predictors of performance.
Better Performance within the Same Credit Score Band
Relationship customers perform better within the same credit score band. For example, a community bank customer with a 700 credit score, a higher number of deposits, and more than five years of relationship history is statistically less likely to default than a brand-new customer with the same score acquired by a national issuer.
This matters more in a competitive product like credit cards. Relationship lending data provides the context that scores miss and results in more accurate credit decisions and safer portfolios.
Better Usage and Activation Drive Stronger Portfolios
The benefits of relationship lending go beyond credit performance. Relationship portfolios see higher activation and usage rates on credit cards issued. When a trusted bank offers a customer a credit card, they are more likely to activate it, use it regularly, and integrate it into their everyday financial lives.
Higher usage translates directly to stronger portfolio performance. Cards that are used regularly generate more interchange revenue, build customer loyalty, and offer more visibility into spending behavior. In contrast, cards issued to non-relationship customers may be more inactive or riskier due to low engagement.
Credit Loss Rates: A Clear Advantage
Community banks that use relationship data in their credit card programs see the results in their bottom line. Based on the historical data on relationship-based credit card portfolios managed by CorServ, the credit loss rates for relationship-based cardholders are significantly lower than the industry average reported by the Federal Reserve. That is a clear sign of the value of knowing your customers and leveraging the proprietary data.
Commercial Cards: Safer and More Profitable
Relationship lending is especially effective in commercial credit cards. These are structured with pay-in-full terms, meaning the balance is paid every billing cycle. The risk of delinquency is typically much lower, and the interchange rate from the payment networks is higher.
Commercial cards tend to produce higher returns. Business customers typically have larger average transactions and greater monthly spending, which results in higher interchange revenue. In addition, banks have more control over credit exposure, with real-time visibility into spending and the ability to adjust credit limits as needed.
Banks strengthen customer relationships and lower risk when they offer commercial credit cards to business customers with existing deposit accounts, loans, and treasury services. The bank becomes a complete financial partner rather than just a credit provider.
A Timely Opportunity
With national issuers facing rising losses and tightening credit standards, community banks have a unique opportunity to grow safely and confidently. The key is not aggressive expansion but safer lending based on relationships. Community banks have an opportunity to successfully serve their low-risk, high-value customers by using their existing relationship data. This creates not only safer credit card portfolios but also longer-lasting and more profitable customer relationships.
Relationship-based lending is not just about knowing your customer. In today’s market conditions, leveraging proprietary relationship data is a valuable tool for a lender. For community banks, it is not a new capability. It is their greatest strength.
