If you’re thinking about engaging members and increasing wallet share, you might begin by rethinking your credit card portfolio. Credit unions that sold their card portfolios a few years back — along with those whose portfolios are languishing from lack of attention — now have the opportunity to grow revenue and member loyalty with an established, proven product.
“People use their credit cards every day,” says Carlton Howard, vice president of Coastal Federal Credit Union in Raleigh, N.C. “They may not drive the most revenue, but they might be the stickiest product we have.”
ALL SHOOK UP
Americans are attached to their credit cards — and the reasons go beyond practicality. When credit card companies began raising rates and fees and cutting credit lines a few years back, consumers became insecure. The crisis hit everyone, even consumers with good credit. According to one FICO survey, 14 percent of the U.S. credit population saw a reduction in their credit lines between April 2009 and October 2009. Of these, four percent had a risk trigger — a late payment, collection or adverse public record. But 10 percent had no such risk trigger. This group posted a pre-reduction average FICO score of 757 and had low utilization ratios.
The credit shakeup of the past few years has done more than change the way consumers view and use credit cards. It’s created an opportunity for trusted credit unions to extend a welcome.
With revolving debt on the downswing and credit requirements still strict, this is not a chance for credit unions to get rich quick. Rather, offering card programs with reasonable terms and fees and strong member service — in short, programs that make solid financial sense — shows members that your credit union is in their court.
GOOD FOR YOU
That said, there are several organizational advantages to expanding your credit card programs. These include:
- Interchange income that is not affected by current legislation.
- An adjustable-rate loan product in a fluctuating rate environment.
- A new connection point for prospective members.
- Increased wallet share.
- Access to behavioral data about members.
- Cross-sell opportunities monthly via statements.
- Opening to serve underserved and newly credit-impaired consumers with secured card products.
- “Halo effect” from providing a fair product.
- Emotional attachment. According to Robert D. Manning, author of Credit Card Nation, consumers hold their first time card accounts for an average of 15 years.
EXPLORING THE OPTIONS
If credit cards represent a great deal of potential, they also represent a great potential workload for credit union leaders and staff. Wanting to offer a solid card program may be a “no brainer,” but promoting and running that program will require plenty of smarts.
Though there are many options and nuances to creating a credit card program for your credit union, one of the most pivotal decisions involves how you’ll have your card transactions processed. Some, like Coastal FCU, choose full-service card processing. The credit union underwrites and carries credit card loan receivables, but all processing (including posting), card production, statement generation and servicing are typically provided by a “fully outsourced” vendor.
With help from a good vendor, full outsourcing can enable your credit union to provide an excellent card program with minimal staffing. Coastal FCU’s Howard is quite aware of the efficiencies he enjoys. “Even when you’re doing everything right, you can expect a deluge of phone calls about credit cards,” he says. “Being there to handle questions is a big part of handling plastic.”
On the other hand, credit unions that set their sights on innovation — and are willing and able to commit to the staffing required — can choose less outsourcing and greater control. Working with CO-OP Financial Services, Community Financial Credit Union in Bloomfield, Colo., has implemented a new credit card program using pass-through processing and their own smarts.
Jeremy Pinard, Community Financial CU’s chief lending officer, sees the new program as an opportunity to serve members in a more integrated way. That means offering members overdraft protection via their credit cards as part of a single account package that includes integrated savings, checking, credit/debit and overdraft. “We want our members to have one card that they can use for everything,” Pinard says. “We think this kind of product can change the relationships we have with our members.”