KeyBank will soon get to test the power of years of investments to its operations and redesigns to rewards as it moves its credit card operation back under its own roof.

The subsidiary of Cleveland-based KeyCorp this month announced that it purchased the $725 million KeyBank credit card portfolio from U.S. Bancorp.'s Elan Financial Services, bringing marketing and operations for some 400,000 MasterCard and Visa consumer and business card accounts in-house. 

Like other regional banks that in recent years acquired their own credit card portfolios, KeyBank for the first time in more than a decade will control all aspects of its credit card offerings, providing "better visibility into the total bank relationship" when soliciting prospective customers, Dave Bowen, KeyBank's head of consumer strategy and product management, said in an interview.

KeyBank last fall introduced a new rewards program encompassing all of its products, including debit cards; the bank is now reworking that program to include new credit card rewards and incentives, Bowen says.

"Our company strategy centers very much on relationship marketing, and credit cards are an important element in the spectrum of products we offer customers," he says.

KeyBank for several years has offered customers a menu of MasterCard- and Visa-branded credit cards. It outsourced receivables and risk-management, customer service and other operations to a series of third parties, limiting its ability to fully control the card operation, Bowen says.

But it was no accident that KeyBank sold its portfolio 13 years ago, and its journey back underscores seismic shifts in banking trends and in the card industry in particular, he says.

Near the end of the 1990s, credit card giants like MBNA Corp. and HSBC began to take share away from regional banks by offering consumers aggressive deals to transfer balances with low interest, he says.

Rather than engaging the giants in costly marketing battles, KeyBank in 1999 followed the lead of other regional banks, selling the portfolio to Associates Corp. of North America, Bowen says. In the resulting agent-banking deal, KeyBank retained a portion of profits in exchange for touting its credit cards at its branches, but it got rid of much of the risk and costs of running the portfolio.

Citigroup Inc. subsequently purchased Associates, but several years later during the gathering financial crisis, Citi put KeyBank's portfolio on the block along with many of its agent-managed card portfolios.

KeyBank in 2008 considered buying its credit card portfolio back from Citi, but it was unable to pull off the deal due to the capital crunch, Bowen says.

U.S. Bank's Elan Financial Services bought KeyBank's card portfolio four years ago, and this year KeyBank finally saw the opportunity to re-acquire the portfolio, he says.

KeyBank plans to continue supporting existing Visa credit cards in the portfolio, Bowen says, but last year it signed an agreement with MasterCard to issue debit and ATM cards. Through its website, KeyBank now steers new customers to MasterCard products.

KeyBank, which has more than 1,000 branches in 14 states, has made significant internal changes in recent years, including expanding its call center and risk-management operations so that it could handle taking its credit cards back into the mix, Bowen says.

"We look at credit cards as being a natural adjacent product to auto, home and consumer loans and now we have really robust resources to support the operation," he says.

Key also aims to make sure its consumer rewards program supports both debit and credit card use.

"When a lot of banks phased out debit rewards last year in reaction to the Durbin amendment, we kept them, although we recalibrated the earnings rate for debit transactions," Bowen says.

Through KeyBank Relationship Rewards, introduced in September 2011, bank customers may earn one point for every $6 spent on their debit cards, 2,000 points for paying up to 10 bills online each month and a one-time point-bonus for opening a credit card.

Cardholders may earn more points for various bank actions during seasonal promotions, such as its summer offer that runs through Aug. 31 enabling customers to earn 20,000 points for opening a credit card account.

KeyBank Relationship Rewards can be redeemed for merchandise or gift cards; 13,000 points translates to a $25 gift card from a major national merchant like or AMC Entertainment, according to the bank's website.

A growing number of regional banks, including Regions Financial Corp., have opted to re-acquire their credit card portfolios in recent years, Scott Strumello, an associate with Auriemma Consulting Group, said in an interview.

And KeyBank is not alone in devising new consumer rewards programs that apply to spending on both debit and credit cards, although many banks still have not directly integrated the rewards programs in this way.

"I think there is growing acknowledgement across the industry that the total customer relationship is more important than the" profit and loss "of an individual product and we are going to see more of this, including banks restructuring so they can manage card products through the same lens," Strumello says.

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