RLR Management Consulting

2018: The Year to Focus on Commercial Interchange

A logo of mid-south user group

By Victor Yefremov founder and CEO of Xpensable

While interchange revenue makes up the second largest revenue stream outside of interest income, it is common to observe institutions that are not focused on this as a strategic growth opportunity, and instead continue on the passive path of taking whatever comes their way. It is perhaps the most unaddressed hole in the armor of many community and regional banks, and perhaps one of the best opportunities for incremental revenue gains in 2018.

Considering the aggressive cross-sell approach of some major institutions, it illustrates corporate objectives that stretch well beyond loan products alone. Clearly programs are being adopted by sales leadership to reward more than just commission points on loans written. In many cases this represents opportunities amongst core commercial audiences, where non-loan programs are used to penetrate competitor customer bases in a Trojan horse like manor.

As a focus group of one, my own personal experience has been a curious situation where I knew firsthand the tight connection we maintained as a business with our regional bank. Yet in all three instances over a 15-year period, I have never been issued any corporate card other than American Express. While perhaps my experience is unique, it’s more likely a reflection of their intentional and successful pursuit of corporate card accounts.

There is little argument that American Express aggressively pursues the acquisition of corporate card accounts. And why not – American Express demonstrates monthly purchase volume at three times the industry average. Compound this spending velocity by the fact that American Express (and commercial cards in general) hold higher interchange rates, and it becomes obvious that being strategically aggressive in this arena pays dividends.

So why does this opportunity remain a passive footnote for most community and regional banks? Perhaps it’s the recognition that companies such as American Express and Wells Fargo invest heavily in technology and expense management tools that facilitates these business card services? Or maybe what is feared more than the commercial card competitors is the myriad personal cards that dominate individual spending patterns; with a drug-like addiction to points and rewards.

Selling to the Back Office

Let’s take a lesson out of the Salesforce playbook, one of the highest growth tech companies for years now. Do they sell their product because salespeople are overzealous to capture their daily activity in a journal like fashion? Do sales people attribute their sales successes to a CRM system? No – for most salespeople it’s just viewed as a tax on their time.

Salesforce is sold to the back office. And why? In any sales-oriented organization revenue predictability and accurate sales forecasts are the holy grail of the financial administrator. Salesforce is selling crystal balls – all your sales activity rolled up into dashboards that enable you to know exactly where the business stands.

So how then do we sell to the back office with card services? We make their lives easier. Take for example a commercial builder with 600 card expenses to reconcile monthly. With non-automated processes this can easily take 40-60 hours of monotonous, mind numbing, and error prone activity, every month. Alleviate this pain and you will see just how quickly company policy can be altered. The simple addition of expense management capabilities enables end card holders to capture receipts for submission and approval in a more automated way, and more importantly in a format that can be imported to accounting systems without painstaking transposition and data entry. Offer transaction synchronization for your institutions cards, and you can effectively automate the expense reporting process, eliminating most of manual effort involved in the expense reporting process, right down the end card holder.

When you make life this easy, you make the decision to establish a single card issuer for expenses as a policy an obvious choice. Any other path such as supporting consumer cardholder preference, reduces operational efficiency and hence introduces unnecessary financial impact.

Add the stickiness of also being the long-term record holder – effectively becoming a central system of record for your customers – and you will have established a long-term stream of commercial interchange revenue. These further seals that missing link in your institutions armor – hardening against competing institutions interest in establishing a card services foothold within your customer base.

Victor Yefremov is Founder and CEO of Xpensable, a white label expense management solution banks offer to their small and medium-sized business customers as part of their online and mobile banking experience. By automating expense management, banks increase customer retention and interchange revenue. At Xpensable we believe automated expense management will become the next business banking product standard. For more info visit: Xpensable.com