Why Should a Financial Institution Consider Selling or Partnering with Third Parties on their Credit Card Program?

When we see organizations making promises about buying or sharing your credit card portfolio, we need to understand all aspects of the decision.  

While selling a credit card portfolio can provide immediate balance sheet relief and free up capital for core strategic initiatives, we must consider how this decision can impact brand, member perception, and team members.  

For institutions where card programs are underperforming, a sale may allow management to reallocate resources toward higher-return areas such as commercial lending, mortgages, or wealth management. However, it reduces long-term diversification and may weaken competitive positioning in consumer banking. 

Instead, the financial institution should be working with processor(s) on appropriate marketing and portfolio management as the credit card program is the most profitable loan product in the institution program.  

Let’s discuss the aspect in the following areas: 

Financial Impact 

• The sale could provide some immediate liquidity to the financial institution.  However, there is a loss of future earnings from the card program regardless of any proposed split with a third party.
• Institutions retaining their card program will have ongoing and long-term earnings in terms of interest, interchange and fee income.
• Sale price is influenced by credit quality, yield, delinquency trends, and customer behavior, which means those purchasing the program will drive down the overall valuation of the portfolio.  

Operational Impact 

• Banks and credit unions selling the portfolio might relieve their organization of managing a card program, however, there will need to be restructuring of processes and policies by various departments.
• Partnership Models: The financial institution may retain branding and distribution through affinity or co-brand agreements, maintaining customer presence while outsourcing risk and operations. 

However, the brand and customer/member experience is impacted as they may be calling the acquiring company and not the financial institution. Can the cardholder get the same level of service?  Can they receive this service in the branch or call center or be transferred to a third party? 

Customer/Member & Market Impact  

Banks and credit unions must ask: 

• How does the cardholder experience change? 

• Will there be changes in rewards programs?  

• Can the cardholder see their transactions in their home banking module?  

• How can the team cross-sell products and services as they do not decide on card applications now?  

• What is the impact on consumer / member stickiness with the institution? 

• How do customers / members consider the communication of selling or third partying their card program as retreating from consumer services? 

Key Questions for Executives 

As the financial institution is reviewing and discussing these aspects outlined above with their executive team, some of those final questions to be posed are: 

• Does selling align with long-term strategic priorities and growth focus? 

• What is the trade-off between upfront gain versus long-term revenue loss? 

• How will the financial institution maintain customer loyalty and engagement post-sale? 

• What operational changes and workforce impacts must be addressed? 

The good news is that Engage fi is there to assist financial institutions in these discussions along with ideas to work with their processor(s) to grow and manage their card programs. Reach out to us today to discuss.