Whether driven by political or practical interests, the attention given to credit unions’ small business lending practices continues to grow in scope. Small business lending represents a significant opportunity for many credit unions to deploy excess capital or serve population tranches that larger institutions do not find appealing. Credit unions know the small businesses they service on a personal level and are thus the best positioned financial institutions to understand their needs.
Credit cards remain one of the most natural initial products for cooperatives to offer to small businesses. This option not only helps businesses with cash management and short-term liquidity needs but often represents a first step in building larger, deeper relationships with the financial institution.
Whether credit unions are seeking to better understand, improve, or expand their small business credit card offerings, taking a holistic viewpoint that includes financial dynamics, product selection, flexibility on underwriting/liability structures, and the end population will help drive them to the desired results. The following best practices emerged from Elan’s own experience in helping its 300+ credit union partners deliver small business credit card solutions to their members.
Research And Analytics Provide A Firm Baseline
The financial dynamics of a small business credit card differ from the dynamics one would see on a consumer card. In particular, the percent of revenue driven off of interchange revenue (purchase related activities) greatly exceeds the amount on a consumer card:
This financial dynamic makes it necessary to create a core product that captures as much of the small business spend as possible. The data points credit unions toward considering reward cards, but what type is best?
When building and launching a new small business credit card product, understanding the needs and expectations of the end population remains the core of success. The initial knowledge gathering process may include steps such as market research, focus groups, industry bench-marking, and segmentation analysis. For example, when Elan decided it wanted to launch a new, financially viable rewards program designed to meet small business needs, the company’s initial research was two years in the making.
During this process, it became apparent that business owners were busy and wanted something easy, simple and straightforward that rewarded them for how they operate. Many shared the perception that a large portion of existing reward programs were unnecessarily complicated, despite promises to the contrary. Elan’s own product development process initially leaned towards reward tiers based on spend category (e.g., earn 3x here, 2x here). However, the feedback given time and time again centered on “My business does not spend that way, so therefore that type of reward is meaningless to me."
These insights, coupled with additional research, drove Elan’s development of aproduct suite without any “gotchas” (caps, opt-ins, minimums, etc.) and a straight-forward, monthly bonus on net purchases (on top of the products’ core one-to-one value proposition). Whether the small business is in retail, a doctor's office, or a consulting firm, and regardless of where they spend, these members earn a monthly bonus based on their total card purchases.
“This suite of products has been warmly received by our credit union partners” says John Owens, President of Elan Financial Services. “Elan is thrilled that our new products’ value proposition and core features allow our partners to compete directly against the national card issuers.”
The Importance Of Listening To What Members Want
In Elan’s case, the company solicited feedback from its credit union partners both informally through discussions and directly through its Credit Union Advisory Board. The advisory board was very clear that they needed a small business credit card product positioned to reach the needs of non-profit entities.
Based on this feedback, Elan developed a small business product designed for non-profits, government agencies, and municipalities.
Unlike a traditional small business card underwritten based on the personal credit bureau of the authorized officer (often referred to as Joint & Several), this product’s underwriting process looks at two years of organizational financials and assigns company liability. Ultimately, the investment in a new underwriting strategy and flexibility with liability structure helped some credit unions reach a wider small business member base. This small business product stands as an example of how taking a collaborative approach allows for greater success.
Developing a new product set is a complicated and arduous undertaking with many complexities. However, by working to understand the financial dynamics and population need, as well as utilizing flexibility in their underwriting/liability strategy, credit unions can increase the likelihood for success. Done successfully, this small business segment, similar to consumer segments, will be open to a deeper, broader relationship-based method of servicing members’ needs.
Today Elan is pleased to help over 300 credit unions offer small business and consumer credit card products — including the BonusReward and CommUNITY small business products — to its members on a nationwide basis.
Elan Financial Services is one of America’s oldest and largest agent credit card providers for credit unions. For over 46 years, Elan has delivered a proven partner-based solution, offering best-in-class products and unwavering commitment to service to credit unions across the United States. Elan's base of more than 2,000 employees are dedicated to helping credit union clients reduce costs and risks associated with managing and growing their credit card portfolios. For more information call us at 1-800-223-7009 or visit www.cupartnerships.com.