As national credit card issuers face higher delinquency rates, community banks are positioned to succeed by doubling down on what they do best: building and leveraging customer relationships.
Relationship lending is more than just a community banking tradition. It’s 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
Big issuers rely heavily on credit scores and automated decisioning, but community banks bring something vital to the table: relationships. They have knowledge of their customers that stems from years of banking together across multiple products.
Three core dimensions predict portfolio performance and 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.
Better Performance within the Same Credit Score Band
Relationship customers perform better with similar credit scores. A community bank customer with a credit score of 700, 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. 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 historical data, credit loss rates for relationship-based cardholders are markedly lower than the industry average reported by the Federal Reserve.
Commercial Cards: Safer and More Profitable
Relationship lending is especially effective in commercial credit cards. This is because users pay balances every billing cycle, risk is lower, and interchange from the payment networks is higher.
Commercial cards produce higher returns. Business customers have larger average transactions and greater monthly spending, resulting in higher interchange revenue. Banks also 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 relationship value. Community banks have an opportunity to successfully serve their low-risk, high-value customers by using existing relationship data. For community banks, relationships are their greatest strength.
