How to Grow Credit Cards from Nine to Ten Figures

Navigator Edition: November/December 2013
By: Frank Martien and Jenny Yi

In the U.S. market, 20 banks with at least 50 offices (a proxy to isolate branch-based retail banks) have managed credit card loan programs measuring in the hundreds of millions in balances. As shown in Figure 1, this Cohort of banks represents a combined $1.2 trillion in total assets, 11,000 offices (primarily branches), and $8 billion in credit card loans. For many of these banks, a key strategic question to consider would be how to grow beyond $1 billion in credit card loans to achieve a “10-figure” card program.

Figure 1: Bank Holding Companies With $100 million to $1 billion
in Credit Card Loans as of 2Q 2013


To explore the question of credit card loan growth more closely, the Cohort were arrayed several ways. Figure 2 demonstrates that credit card program size is positively correlated to number of offices given branches are the primary marketing channel for most banks. However, when one normalizes for number of offices, an inverse correlation actually exists in the Cohort in that the five banks with the highest credit card loan balances per office are those with the least number of offices.

Figure 2: Credit Card Loans and Bank Offices


Although many circumstances can certainly impact the figures, a general conclusion could be drawn that banks with hundreds of branches should be at least equally able to compete for credit card accounts as banks with thousands of branches. One could also speculate that driving effectiveness across a large base of branches is not always easy due to factors such as higher potential for a regionalized federation structure, legacy bank acquisitions for which integration is still in progress, or aggressive growth in branches for which training, product placements, and incentive structures are still catching up. For any financial institution, branch effectiveness is often a function of how many best practices a bank has adopted for which Figure 3 provides an illustrative waterfall.

Figure 3: Branch Channel Throughput by Strategies Deployed
(For illustration purposes only – not empirically validated)


The Cohort were also analyzed for statistical relationships between the compounded annual growth rate in managed credit card loans from 2010 to 2Q 2013 versus several variables. For purposes of this analysis, banks from Figure 1 that have recently re-launched their credit card programs, acquired a large credit card portfolio during this timeframe through a bank merger or otherwise, or sold a credit card portfolio of significant size to their program were excluded.

In Figure 4, credit card program growth rates were compared to current program size. Of course, growth naturally leads to size increases, somewhat biasing this analysis; however, in general, we found that larger programs were more successful in growing than smaller ones with an R-squared coefficient of 0.16. Figure 4 also plainly depicts that more than half of these programs declined in size from 2010 to 2Q 2013.

Figure 4: Credit Card Program Growth vs.Program Size


Over time, a credit card program manager may seek to pursue specific segments or engineer changes in key KPIs; so the Cohort were also analyzed for correlations of growth with factors available from FDIC call reports, such as changes in credit line utilization, credit card interest yield, and credit card gross charge-off rates. As shown in Figure 4, banks in the Cohort that lowered their credit line utilization or raised their interest yields tended to achieve better growth rates; however, statistical relationships (based on R-squared) for both are weak. Changes in charge-off rates were more significantly correlated. Every bank in Figure 4 enjoyed significant reductions in their charge-off rates during this timeframe; and those with more significant decreases also posted better growth rates. Of course, one must remember that any credit card program in hyper growth mode will typically lower charge-off rates due to the loan loss lag effect or so-called “speedboating.”

Figure 5 compares average program growth to the number of consumer credit card products offered. The two banks that offer only one product both experienced negative program growth.

Figure 5: Number of Credit Card Product Types Compared to
Range of Credit Card Program Growth

Fig 5_ Number of Credit Card Product Types

Figure 6 maps out the types of consumer cards offered, compared to program growth. All the banks in Figure 6 offer some type of rewards product. To render a few observations, only three banks issue a standard everyday credit card with no unique rewards or benefits; and all three experienced negative program growth. While these programs also offer rewards cards, one could speculate whether a continued presence of a standard credit card offering may eventually become less relevant or even distracting for customers or branch personnel. Conversely, the program with the highest average growth offers the broadest set of consumer cards.

In summary, many banks with credit card programs measured in the hundreds of millions of dollars would like to grow past the one billion mark. Along with maintaining strong compliance with regulations, banks that achieve the highest growth will invest in branch origination and product innovation to help attract their most profitable depository customers to also carry and use their credit cards.

Figure 6: Consumer Credit Card Product Types Compared to Credit Card Program Growth


For more information, please contact Frank Martien, Partner, or Jenny Yi, Analyst, Both specialize in Commercial Payments.

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