A Conversation with Jim Geeslin, Chief Strategy Officer for U.S. Bank’s Retail Payments Business
We recently spoke with Jim Geeslin, Chief Strategy Officer for U.S. Bank’s Retail Payments business. In this Q&A format we discussed the position of U.S. Bank’s card business, partnerships, and its outlook on the FinTech space.
Jim Geeslin is the Chief Strategy Officer for U.S. Bank’s Retail Payments business, which includes credit, debit, and prepaid issuing services for consumers and small businesses across the U.S. Jim leads strategy and business development for the payment industry’s seventh-largest card issuing business. He is a graduate of the University of Georgia and is a 26-year veteran of the payments industry.
1. Can you give us a brief update on U.S. Bank’s card business both in terms of your proprietary portfolio and partnership segment?
The U.S. Bank Payment Services business remains an integral piece of U.S. Bancorp, representing 31% of our company’s overall revenue in 2015. Our Retail Payments segment consists of consumer and small-business credit and debit issuing, and prepaid-card issuing and processing, and represents 60% of total payments revenue.
We continue to think about, and manage, our Retail Payments credit-issuing business in three distinct segments: U.S. Bank’s Proprietary Portfolio, Agent Financial Institution Partnerships (aka Elan Financial Services), and Co-branded Partnerships. Each segment has experienced healthy growth and performance for us over the last several years.
Our proprietary business continues to expand its product line to serve the evolving needs of our bank customer base. We now issue products from Visa, MasterCard, and American Express with a continued focus on developing the next generation of products, including a new suite of cash-back rewards products, and enhancing our rewards capability to provide customers with more choices to earn and redeem points.
Our partnership-based businesses have enjoyed significant success in the marketplace. Our Elan franchise has signed over 150 new bank and credit union partnerships representing over 2,800 branch locations over the last three years. We now provide card issuing for over 1,400 bank and credit-union partners with over 20,000 associated branch locations. It’s no secret there has been an industry-wide increase in self-issuance interest in the past several years following the financial crisis; however,
Elan’s ability to deliver to a FI partner a broad product set with significant digital capabilities (mobile wallets, servicing apps, etc.) continues to resonate with large segments of the FI marketplace. We do see a growing recognition by many FI’s in the market that the unprecedented combination of low funding rates and low industry credit losses is not likely to persist in the mid-to-long term. Those dynamics, coupled with compliance burdens and growing need to keep pace with payment industry innovations, makes partnering with a provider like Elan a clear and lower-risk alternative to on-balance sheet card portfolio management for large segments of the U.S. FI marketplace.
Our co-brand franchise has also continued to experience sustained growth, both organically with our long-term partners as well as through new partner additions. We recently announced the additions of both Fidelity Investments and the Auto Club Group as our two newest co-brand partnerships, adding over $2 billion in new card assets to our partner portfolio. We continue to strongly believe co-brand card products are a key to maintaining ‘top-of-wallet’ status in the emerging digital landscape. Partner programs which have strong brand loyalty coupled with a unique value proposition and engaged leadership team remain firmly within our strategy as an area for growth.
2. How does U.S. Bank leverage its rather unique broader payments franchise to benefit partners?
That’s a great question. As you know, we have top 10 positions in our issuing and acquiring businesses across all the major payment segments from prepaid to large corporate. We also own and operate specialized solutions for Freight and Fleet in our corporate business. We have the benefit of scale and industry-leading performance to help bring value to our partners in the spaces where we compete. For example, Elavon is particularly strong in the small-business segment where we typically do not see co-brand credit card offerings. To help those businesses compete, Elavon has developed loyalty-and-offer solutions that are simple to operate for the business and their customers including integrated offer redemption at the point of sale. This has exciting potential as we look to further opportunities in this important space.
For our retail co-brand partners we have developed mobile solutions to manage cardholder activity through the lifecycle, including opening accounts in a consumer facing app or an associated iPad. We have also built capabilities to deliver and manage the loyalty solution as part of the product design, or to integrate to our partner’s loyalty solution. We leverage our ongoing innovation and product development to continually develop new solutions and enhance the experience for our partners, their customers and ours.
3. Certain banks compete in the partnership space based on sector coverage, product set, etc. How does U.S. Bank assess new opportunities across segments given the diversity of your market coverage?
We view our partnership business in two primary segments: agent financial institution partnerships and co-branded partnerships. Our agent FI business, Elan Financial Services, serves all sizes and scopes of FI’s, from a single branch credit union up to a large regional bank. We have invested tens of millions of dollars in our proprietary FI partner servicing platform to accomplish this. We have been in that business for over 50 years, so assessing a new partner opportunity is very easy for us; if we believe the bank or credit union will be an active and engaged partner we will likely pursue given the tools we have to fuel success.
Co-brand partnerships, on the other hand, require much more thought and scrutiny to determine the likely success of a card program. Our industry has been littered over the years with failed co-branded deals, most of which failed for one or both of two primary reasons: either the value proposition was not truly unique or the partner did not view the program as a key part of their business strategy and so didn’t fully support the program. Our most successful co-brand partnerships are those that are founded on the fundamental understanding of the enterprise value created by a card program and a commitment by senior management to actively develop and market a unique offering for their customers. This is more easily said than done. We count over 200 co-brand programs in the industry today, and we believe a small subset truly fit that criteria. We have chosen to stay out of the private-label space, so we focus on ‘general purpose only’ programs. Within the co-brand market we have chosen not to limit ourselves to specific sectors, but to instead create a clear list of ideal partners and to then try to build our business capabilities to meet what we believe they do and will need.
4. What are your growth ambitions as it relates to partnerships in both the Elan franchise and national scale partners?
We view both the Elan business and our co-brand business as growth engines for our payments franchise. We intend to actively grow our market leadership positon in agent FI markets by continuing to invest in state-of-the art products, digital technologies, and marketing and servicing tools which allow our FI partners to grow their cardmember bases and in turn solidify their overall relationships. We will also remain ‘selectively aggressive’ in the co-brand market, with a keen focus on growing both our existing partnerships through their 20,000+ distribution points as well as enhancing our focus on developing new partnerships with our select list of desired new partners. We view ourselves as the clear market leader in the agent FI marketplace and certainly believe we are and will continue to be a top-tier co-brand issuer.
5. How does U.S. Bank approach innovation in the cards space given all of the activity with mobile and FinTech?
We decided almost 10 years ago we wanted to be a leader in the industry’s emerging innovation. To that end, we founded our payment innovation team that has now grown to serve our entire company. This dedicated focus on emerging markets and technology allows us to build concepts into market tests quickly so that we can validate them, or move on, in a cost-effective manner. “Fail Fast” is a common mantra in this space.
This takes more than a commitment to innovation. We worked hard to develop approaches to support the model, develop new ways to test and learn, and accelerate our development processes to get to market. We continue to adapt and learn as the market changes. We spend time and energy listening to customers and the market; we believe this helps us understand where there are interesting opportunities or problems. A good example of this is work we began early in the development of tokenization with other owner banks of The Clearing House. This ultimately led to the payment networks to establish a standard under EMVco governance which paved the way to secure mobile payment and online wallet payments we see taking root today.
We also know that we can’t do it alone. We actively collaborate with our partners (co-brands, networks, and others) to develop new solutions and bring them to market. We also engage directly with the FinTech accelerator space and the venture capital community to expand our reach and scope of possibilities.
We take this approach because we do believe it is hard to predict what will be embraced and succeed and what won’t. We want to ‘place a few chips across the board’, as it were. This portfolio approach allows us to efficiently manage risk and opportunity but requires dedicated focus and partnership with our business leadership. We are fortunate to have the scale and commitment to provide us this opportunity.
Relative to our issuing business you have seen us be one of the first in market in each of the primary digital wallets (Apple Pay, Samsung Pay, Android Pay), you have seen us pilot wearables early in the development cycle, and you have seen us lead the industry in the first mobile and tablet-based account acquisition process (with our partner, REI). We certainly believe the pace of innovation in the payments industry will continue to accelerate, and we intend to continue to make our innovations practice a cornerstone of our payments strategy.
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