First National Bank of Omaha
is one of the largest privately-held credit card issuers in the
US.
Charles Davis looks at why the bank is shedding its relatively low
profile for a much more aggressive play aimed at co-branding its
way to a national footprint.
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First National Bank of
Omaha (FNBO), a longtime card issuer still relatively unknown
outside North America.
It has rolled out several
co-branded programmes and recently joined GE Money and HSBC to
become one of only three US banks with contracts to issue credit
cards on all four major card networks.
“We’re trying to raise our profile
in the marketplace, and we’ve become a significant player in the
financial institution agent issuance marketplace. This will
increase moving forward,” says Stephen Eulie, president of FNBO’s
credit card division. “We see a lot of room to grow the business,
both in terms of issuance and in co-branding.”
The issuer signed agreements in
October that will allow it to add Discover Financial Services and
American Express (Amex) to the lineup of network brands it issues,
in addition to MasterCard and Visa, its initial issuance
partner.
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A lot of
flexibility
“That gives us a lot of
flexibility, and it means that Discover and Amex are out there
bringing us potential partnerships,” Eulie says. “Both add to our
options in unique ways.”
For example, Eulie says that many
of its financial institution partners are interested in developing
ways to offer card products for the mass affluent segment of their
business, something Amex is well-known for on the bank issuance
side.
In its relationships with Amex and
Discover, FNBO will issue the cards, manage the customer
relationships and handle marketing, billing, charge authorisations
and credit management. The networks will process the transactions
through their respective networks.
On the co-branded side of the
equation, Eulie says he is most interested in smaller retailers,
regional and speciality merchants wanting to enter the co-branded
credit card market and which fall beneath the radar of the larger
issuers, who require economies of scale sufficient to merit the
investment.
“We don’t need am co-branded cards
to make a partnership work,” he says. “We need a mid- to
large-sized retailer with a deep commitment to making a deal work,
and a strong brand.”
Eulie has built FNBO’s impressive
stable of co-branded relationships by exploiting the space between
the national chains and local brands, opting instead for strong
regional brands such as Scheels All Sports, a Midwestern sporting
goods chain, and Murphy USA, a petroleum merchant with 1,000
outlets mostly in the Southern US states, located in conjunction
with WalMart stores.
As FNBO develops the co-branded
relationship, it looks for ways to innovate as well. The deal with
Murphy not only gives customers a discount on every gallon of gas,
it also features an actual rollback of the pump price when they
insert the card into the pump.
In September, FNBO launched a
co-branded MasterCard programme with the online merchant
Overstock.com, and also has co-branding deals with the National
Rifle Association, Japan Airlines, All Nippon Airways, Sinclair Oil
Corporation and Clark Oil, among others.
“These are all strong, regional
merchant brands, and each was looking for a way to reward
customers,” Eulie says. “We like working with partners, developing
unique value propositions in conjunction with the partner.”
Eulie, who added that FNBO is
currently talking to a number of brands and will have “three or
four more deals” in early 2011, says that the US card market is
heading back toward an era of greater fragmentation.
“For a long time, ‘top-of-wallet’
was the ultimate goal, but credit cards can’t be an all-or-nothing
proposition,” he says. “Consumers want different rewards from
different cards, and they want truly unique value propositions. If
you can build that into a co-branded card, they will pull more than
one card from their wallet.”
In fact, plenty of people are
willing to carry more credit cards in their wallets if the rewards
programs are strong, Eulie says.
“They may use one card to get a
discount with a gasoline merchant and another to get a discount at
a sporting goods store,” he says. “The average consumer has four or
five cards in their wallet, and is happy to pull out different ones
if they are getting a good deal.”
A good fit
The regional merchants FNBO has
been concentrating on are a good fit because they can design
co-branded card rewards programmes around specific product
offerings with incentives for customers to make frequent or
higher-ticket purchases, Eulie says.
Another major part of FNBO’s cards
business is agent issuance, in which the bank issues and manages
credit card portfolios on behalf of other banks.
The issuer, which has 2.5m of its
own cards in circulation, issues cards for 700 other financial
institutions and this year will take on a record number of other
banks’ credit card programmes as an agent issuer, Eulie says.
“The agent bank business is really
growing,” he says. “In the next couple of months we expect to add
at least 10 additional bank partners.”
The regulatory impact of Reg E
changes and the more difficult economic landscape has more issuers
than ever before turning to agent bank issuance, Eulie says.
“Banks see a need to increase fee
income and credit cards are a good way of achieving that, and so we
have more banks getting back into the business,” he adds.
Overall, Eulie is an inveterate
optimist, seeing improved spending and more growth in the future
for his cards business.
“We see a lot of positive signs out there and the early holiday
numbers have been really encouraging for us. It’s been a difficult
time for the industry, but we think that the value proposition we
offer cardholders can play a huge role in turning things around
when the economy improves.”
