The Investment of Time and Expense: Breaking Down the Barrier to Entry for Commercial Card Programs

Today, we're diving into a topic that often acts as a significant barrier to entry for many financial institutions: the investment of time and expense required to start up a commercial card program. While the benefits of such programs can be substantial, the upfront commitment can sometimes seem daunting. We'll explore why this investment is necessary, what it entails, and how it can ultimately prove to be a wise move for your institution.

Why Businesses of ALL Sizes Value Commercial Card Programs

Before we delve into the cost and effort involved in launching a commercial card program, let's first establish why financial institutions are increasingly bringing these programs in house. Commercial card programs, such as corporate credit cards, purchasing cards, and virtual cards offer a range of benefits to their most valuable clients:

Streamlined Expense Management

Commercial cards simplify the tracking and management of business expenses. They enable companies to monitor employee spending, categorize expenses, and generate detailed reports effortlessly.

Enhanced Control

These programs allow businesses to set spending limits, restrict purchase categories, and enforce spending policies, enhancing control over company finances.

Efficient Procurement

For businesses that frequently make purchases, purchasing and virtual cards expedite the procurement process, reducing administrative overhead and promoting cost efficiency.

Improved Cash Flow

Commercial cards often offer extended payment terms, giving businesses greater flexibility in managing their cash flow.

Rewards and Incentives

Many commercial card programs offer rewards or rebate, which can translate into significant incentives for the business. Banks become not just financial partners but providers of added value.

Why Community and Regional Banks Should Prioritize Commercial Card Programs

- Attract new business clients

- Better serve existing clients holistic treasury needs

- Increase non-interest fee income

- Compete with large banks, fintech and other issuers

The Investment Required for a Financial Institution Now, let's address the elephant in the room: the time and expense involved in setting up a commercial card program. This investment consists of several key components:

Infrastructure and Technology Implementing a commercial card program involves selecting a processor, network and potentially additional technology providers. It can be difficult to find the right partner or combination of partners, in a cost-effective manner.

Subject Matter Expertise Commercial cards can be a complex solution set, requiring in-depth and specialized knowledge on many different systems and use cases. Acquiring and retaining strong commercial card talent is a challenge we have seen in the industry, especially for community and regional banks.

Operational Support Bringing a commercial card program in house requires operational costs associated with program management, including overseeing card issuance, network reporting, and reconciling accounts. This may necessitate additional personnel or outsourcing to a third-party provider.

Compliance and Risk Ensuring your commercial card program complies with all relevant laws and regulations is a necessity, as well as fully understanding the fraud risk that the Bank takes on with this product. Commercial card programs are less regulated than consumer card programs. For this reason, we continue to see many community and regional financial institutions choose to bring their commercial card and small business card program in house and leave their consumer credit card program with an agent provider.

Credit Underwriting and Portfolio Management Incorporating a new credit product into a Bank’s credit policy and procedures can be difficult without expertise or guidance. Credit risk is one of the primary risk factors with any credit card program, so it is critical that this is well thought out and a comprehensive approach to underwriting and managing portfolio risk ongoing.

Breaking Down the Barrier to Entry While the initial investment may appear daunting, it's essential to view it as a strategic move for your financial institution’s long-term growth strategy. Here's how to break down the barrier to entry:

Cost-Benefit Analysis Before diving in, conduct a thorough cost-benefit analysis. Consider the potential revenue growth that a commercial card program can bring to your institution and weight that against associated costs. This analysis will help you make an informed decision.

Partner with Experts

Collaborating with industry experts experienced in commercial card programs can streamline the process. They can offer guidance on selecting the right program, ensure compliance, and provide ongoing support.

Gradual Implementation You don't have to implement a commercial card program all at once. Consider a phased approach, starting with a basic product offering, and expanding as your portfolio grows and you become more comfortable with the program.

Leverage Technology Invest in technology and providers that aligns with your specific needs and organization's culture. Reviewing your integration points and strategy is important to ensure you can optimize your client data and insights. Utilizing nimble technology solutions can help you bring the cost down to meet your organization where it’s at today and grow with you in the future.

Conclusion

While the investment of time and expense to start up a commercial card program can initially act as a barrier to entry, it's important to recognize that these programs are designed to benefit your financial institution and your customers for the long term. By carefully considering the costs, partnering with experts, and taking a measured approach, you can break down this barrier and open the door to new and valuable solutions.

At S.S. Scale, we're passionate about payments, and would love to help you find the program that's a perfect fit. Reach out today to schedule a complimentary cost-benefit analysis with our team.