Commercial cards have been a core offering for decades and over recent years this market has undergone significant transformations.
Driven by a mix of new product offerings and changing business expectations, commercial card use has risen dramatically. The renewed growth in these products presents regional banks with an opportunity which has been overlooked by their larger more traditional counterparts.
In fact, many of the larger national banking corporations had considered commercial cards to be a thing of the past with many either failing to update their offering or selling their commercial card portfolios to third parties. However, commercial cards are now among the fastest-growing products for banks and commercial card spending continues to increase. By 2020, we estimate that spending levels will have increased by 71 percent from 2013 and the compound annual growth rate will reach 8 percent.
This growth has resulted in issuing banks racing to improve their capabilities and gain a share in a growing but highly competitive market.
According to our recent survey of regional and super-regional banks, all reported major expansion in their commercial card portfolios, often growing at double-digit rates every year. Of the banks surveyed, none reported a decline in its commercial cards portfolio by any metric. As a result of this growth, commercial cards are now moving up the agenda as an investment opportunity for many institutions of all sizes. This investment will in turn fuel an expansion in capabilities and increase broader competition within the market. Organizations that do not invest in their commercial card capabilities are likely to see themselves quickly fall behind.
While the commercial cards market has historically been dominated by large national and international issuers, regional and super-regional banks are in many ways better placed to take advantage of this latest wave of growth. For instance, regional banks are in a much better position to offer a more flexible customer-centric proposition and better service to mid-market corporate and small business players than national issuers.
Unlike national banks, these organizations can dedicate more resources to midsize and small customers while also providing greater flexibility in commercial card program design and administration. These smaller issuers are also often better placed to help customers that may lack internal expertise on setting up commercial card programs and integrating them into enterprise back-end systems.
Regional banks should look to harness the potential of this valuable market by expanding their existing card portfolios, developing new product and service lines, and deepening their relationships with their corporate and business customers.
Additionally, by placing an emphasis on flexibility and delivering on customer needs, these smaller banks will strengthen their competitive offering in a highly competitive market. As a result, they have the potential to gain market share and increase their balances in a market that has long been dominated by a handful of Tier 1 issuers.
Ultimately, regional and super-regional banks should take this opportunity to move into a space that has been overlooked by their traditional counterparts. Not only will this help them secure a larger share of a valuable market, but it could also be beneficial to customers, offering them more customer-focused, bespoke commercial card services.
