Although a bank’s name appears on your collectible credit card, that doesn’t mean the bank actually issued it. Because of the rapid growth in the number of bank credit cards and the tightening of profits, many small banks were squeezed out of the market.
On account of their size, they often lacked the money to set up an expensive computer system to start their own credit card service department.
Credit card service bureaus explained
Thus, in the mid ’70s, credit card service bureaus were born. Credit card service bureaus sprung up to help small banks get a piece of the competitive MasterCard and Visa markets. The bureaus, in return, get a share of the banks’ credit card profits.
The way it works is a small bank signs with a service bureau. The bureau then sets up a credit card program for the bank. Depending upon the bureau, the bank has varying levels of decision-making capabilities. Most banks have a say in the cards’ designs.
What to charge for annual fees and interest rates becomes tricky. It depends largely on which state the bank is located and the amount of profit desired. The bureau shares a portion of the annual fee and the interest collected with the “issuing bank.” These funds are actually collected by the bureau.
The bureau then pays the bank its share of the money on a monthly or quarterly basis, depending on the agreement.
What do credit card bureaus do?
A credit card service bureau works hard for its share of the money. The bureau handles virtually all of the details, from creating the cards’ designs to soliciting all of the bank’s customers by direct mail. They verify credit and mail out credit cards.
The bureaus also handle paying the processing charges that come from the credit card clearance centers. They even print and mail out the bank statements. There are several additional services a bureau can offer its customers. Services such as credit card protection (notifying the issuers if your cards are lost), rental car insurance coverage, life insurance, toll-free message service, special travel reservations service, etc.
The banks usually have little say in the billing and collection procedures. No matter how big of a depositor you are, it’s very difficult for the bank to waive a late charge or reverse a bad billing since these are handled by the bureau.
It’s relatively easy to determine if your bank card is from a service bureau. If the billing statement is generic-looking, with the bank’s name printed by computer along with yours, chances are you have an account from a credit card service bureau.
Copyright 1988 by Dan Sinisi
