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Think Beyond Credit Score: How Community Banks Can Grow and Engage Card Customers

Adapted from Elan’s publication, “Think Beyond the Credit Score: How Financial Institutions Can Grow and Engage Customers.”

Expectations of community banks are constantly evolving. A bank’s ability to deliver the right products and services that best meet customers’ daily needs is the most important factor in creating a superior cardmember experience. Some would say meeting consumers’ needs is even more important than data protection, security, and building personal relationships. To retain existing customers and engage the next generations, it is imperative that community banks prioritize investments and operations that address these daily needs.

One way community banks can improve their ability to respond is to rethink customer engagement processes. Processes that streamline while meeting compliance requirements, especially for credit card underwriting, can position community banks to attract new credit card customers and satisfy existing cardmembers.

Expand Your Underwriting Processes

Many underwriting approaches rely primarily on customer credit scores. Although this is a straightforward approach, it has drawbacks. For example, younger generations just beginning their credit journey may not have the established credit scores of older generations. To reach a broader sector of potential customers from evolving demographics and economic conditions, financial institutions should consider expanding risk-based underwriting criteria and a digital approach.

Credit scores, however, do not tell the entire story, and when used alone in the underwriting process, can dramatically limit a financial institution’s ability to meet customers’ needs. For instance, although the average credit score in 2021 was 714, according to FICO, about 60% of people in the U.S. have a score lower than 714. Further, within age cohorts, several groups have scores below the national average. Specifically, Gen Z consumers (679) and millennials (686).

According to the CFPB, consumers who are “easy” to provide with credit have a variety of credit card options and already have an average of four cards. Expanding underwriting methodologies can help financial institutions identify and provide opportunity for more potential customers who can be responsible users of credit cards.

Digital Development

To keep up with competition, community banks need to offer robust digital services and support to engage cardmembers for all demographic age groups. Many community banks today are still asking credit card applicants to enter a brick-and-mortar branch to complete paperwork or perform a manual process that makes it hard for a customer or potential customer to apply for a card. As of 2020, The Economist reported that 59% of executives believe traditional, branch-based financial services would be obsolete within just five years. In addition, a growing number of consumers, especially younger demographics, demand frictionless mobile transactions and expect seamless, accessible digital services from their financial institutions. This includes applying for and seamlessly managing a credit card using a mobile device.

Help More Customers Understand Their Finances

According to Goldman Sachs Consumer Sentiment Study, 44% of respondents want to focus on improving their credit score throughout 2022.8 Additionally, a CIT Bank survey found:

  • 77% of Americans plan to save more money during 2022
  • 43% want to invest more of their money

These survey results show that most consumers are setting financial goals and want to be more financially savvy and literate. As a result, community banks are in an ideal position to be a go-to resource in helping more customers understand their finances and achieve their short- and long-term financial goals. Providing financial literacy information helps cardmembers understand the components of their credit score and take steps to strengthen their standing to feel empowered in their spending. Financially educated and engaged customers are prepared to become eligible for more financial products and expanded credit limits. It creates a virtuous circle for the cardmembers and the bank.

Embrace Generational Differences

Younger customers often need the most assistance with financial education but are not always the only customers who may need financial advice. Making assumptions about generational needs can lead financial institutions to miss the mark on individual circumstances. Providing ongoing education and being prepared with relevant coaching for customers will go a long way in ensuring more cardmembers seek guidance from their financial institutions.

The pandemic amplified generational differences in financial service preferences, likely contributing to shortcomings in understanding customers’ financial needs. With respect to financial maturity, Baby Boomers and Gen X still value the existence of physical branches and have high levels of trust in their financial institutions. Millennials, meanwhile, experience the highest level of interactions with their financial institution each month — almost four times as often as Baby Boomers and 50% more than Gens X and Z. All factors to keep in mind when addressing customer preferences. Creating a robust suite of products and services with digital attributes will be an essential component of a financial institution’s success and growth for younger and older generations alike.

ICBB in partnership with Elan Financial Services, offers an efficient, easily managed, profitable credit card program. To learn more, contact us at solutions@icbb.bank.

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