When you look at what the big banks are doing with their credit card portfolios, you can see the distinct advantage that credit unions have to build that loyalty with their members. A recent article in USA Today reported the following:
-In mid-April, Bank of America will start charging 3% for balance transfers rather than capping fees at $75 to $100 on some cards.
-Earlier this year, after Citibank announced a large write-down on bad mortgage loans, its CFO told an analyst that it will be considering pulling back on offering cards and increase pricing.
-Last year, Discover raised its top rate and late fees for most of its customers.
-Capital One has also made changes to its credit cards, including shorter grace periods and higher cash-advance fees.
What does this mean for credit unions? It means there is a great opportunity to serve your members and, offering balance transfer promotions in times like these, is a great starting point. Because credit unions typically have competitive rates, lower fees and lower minimum payments, this can be really helpful to your members.
Some best practices for balance transfers, including providing a balance transfer form with new-card issuance, offer an incentive rebate or credit for a transferred balance, or an introductory rate on transferred balances. Research shows that rates under 10% get the most attention from cardholders. To be effective, the rate should also be at least three to five percentage points lower than your ongoing rate, and of course, remember to promote the reduced APR to your members.
Balance transfers are a proven strategy to grow outstanding balances and drive finance charge revenue while building member loyalty and fighting off the competition. The big banks have been targeting our members for years, and we can now give them a dose of their own medicine by offering a competitive product and fair pricing.
We should also be regularly reviewing credit limits to ensure members have sufficient credit. More often than not, proper credit line management has been a strategy missing in the credit union's arsenal. Many credit unions do not have a credit line management strategy in place. Research shows that revolvers (those members that carry a balance on their card every month) will typically choose the card in their wallet with the lowest unpaid balance and the largest open-to-buy. Research further explains that cardholders typically seek additional credit elsewhere when they reach 35% to 40% of their credit limit. This is why regular credit line management that grants credit line increases to qualified cardholders is so important to the success of stimulating increased card volume and usage.
Also, by regularly managing your cardholders' credit lines, you can help reduce voluntary attrition in your portfolio. Wouldn't you expect that your members would be less inclined to call you and ask for the limit increase than to accept the next generous offer they receive in their mailbox? Lastly, realize that by not regularly managing your cardholders' credit lines, members may not have adequate credit limits to take advantage of other usage strategies that you have implemented or are considering implementing. Without adequate credit lines in place, balance transfer promotions and convenience checks are not nearly as effective.
Being there for your members in their time of need will increase their loyalty to you and boost relations. The next time they go car shopping or house hunting, they will remember who was there for them when they needed it most, and they will also remember the fair fees and competitive rates you offered. Credit cards are the credit union industry's highest earning asset, and it is imperative that we leverage this opportunity to actively promote and manage our portfolios.