Can credit cards put the glue in your member relationships?
Visa reported on February 8 that credit card usage rose 10 percent in the first quarter of 2012 – a possible sign that the economy is warming, along with consumer interest in spending with plastic. Better yet, credit cards are profitable. Just ask Visa: They reported a 16 percent increase in profits to go along with the boost in card usage. Credit cards are among the most profitable products that credit unions offer. Yet, profits may not be the best reason to reconsider building (or rebuilding) your card portfolio. The real payoff may be in the form of deeper member relationships: Consumers want financial partners they trust. Big banks and card companies haven’t done a great job of building trust with cardholders. Quite the opposite. Getting the word out on humane rates and fees – as well as “credit builder” programs for members hit with reduced credit scores and lines during the recent downturn – demonstrates the credit union difference in real, relatable terms. People love plastic. Consumers will hold onto favorite credit cards even after they’ve ended other relationships with a financial services provider. Credit cards represent an alternative payment method to checks and debit, extending your share of wallet. You can reward loyalty. “Credit cards are the perfect vehicle for loyalty-building with programs that tie earning points to card usage,” says Jennifer Kerry, CO-OP’s Vice President of Credit Card Services. Want to up the ante? Community Financial Credit Union in Broomfield, Colo., increases rewards points for members with multiple accounts and/or high balances. There’s room to grow. Credit card expert Ondine Irving of Card Analysis Solutions estimates that fewer than three in 10 credit unions members carry credit union credit cards. While this may be a great time to start or expand your credit card program, doing so successfully takes some smarts. “Although credit cards are a very profitable product, they’re also a very risky product,” says credit card expert Tim Kolk of TRK Advisors. Credit unions need solid, data-driven programs to keep charge-offs to a minimum. Also critical: target marketing efforts to qualified, segmented membership groups and maintaining tight control of existing accounts. Credit cards aren’t a fast, easy way to get cash – for consumers or credit unions. Kolk estimates that a new card program may take three to four years to become profitable. But long-term benefits to the bottom line – and the long-term relationships you can develop with members – may well be worth the investment. “While we have to ensure our credit card portfolio performs, we don’t have to make the margins banks do,” says Jeremy Pinard, CFO, Community Financial Credit Union, Broomfield, Colo. “I believe we can look at it as a great service to our members. Take care of our members and they will take care of you.”