ALEXANDRIA, Va. -- The latest data from NCUA indicates that credit union card portfolios have continued growing and analysts and CU executives credited better management and a struggling economy for the ongoing trend.
Credit union credit card portfolios worth more than $1 million in assets grew by 14% between June 2007 and June 2008, according to analysis performed by Asset Exchange.
The CU card brokerage and consultancy owned by Fidelity National Information Services reported that NCUA data showed that CU card assets grew at about twice the rate of other CU assets over the same period and that the number of cards issued by CUs grew by 3%.
The number of card portfolios that grew faster than the rate of inflation moved from 71% in June 2007 to 76% this June. Card-related assets as a percentage of overall CU assets also continued to increase, moving from 4.49% in the second quarter of 2007 to 4.80% in this year's second quarter.
The brokerage also reported that the pace of CU portfolio sales has dropped to a crawl. Only five credit unions sold their card portfolios, worth a collective $20 million, in the second quarter of 2008 versus 21 selling their card portfolios worth $132 million in aggregate in the second quarter 2007.
No one from Asset Exchange was available to comment on the very slow market for CU card portfolios.
But Tim Kolk, a partner at Brookwood Capital, another CU card portfolio brokerage and consultancy, acknowledged that his Peterborough, N.H., firm had seen card portfolio sales drop but that there had been an increase in other CU card-related work.
"[The CU card portfolio market] is certainly a lot slower than it was, but we are seeing demand for our consulting work growing, so the main purpose is being met: credit unions are engaging in their card programs," Kolk said. "However, most of our current engagements have less to do with growth and are much more focused on risk management."
Credit union card performance has been rising since mid- to late 2006 but had never before posted double-digit progress, something card processors attributed at least in part to better CU card management.
Card Services for Credit Unions has had a long campaign to help its members improve their card management practices and was quick to see how better management has been helping drive the growth.
"During a tough economy, many cardholders are recognizing that their credit union tends to offer more favorable rates than the big banks on most products, including credit cards," said CSCU Spokesman Cassie Ricks. "And as some banks are facing increased pressure due to the mortgage crunch, many credit unions are in a better position to serve their members with competitive APRs and lower fees."
Mark Fenner, National Sales Manager for TNB Card Services, the payment processing arm of credit union-owned Town North Bank, largely agreed and noted that more credit unions have become aware of how valuable credit cards have become to their members.
"Americans love electronic payments, and credit unions have woken up to the fact that credit cards are an asset that is part of a growing industry," Fenner observed. Fenner noted that with the economy struggling the way it is, some credit unions that might have not given many resources to cards in the past might have rediscovered their card programs as opportunities when compared to relatively moribund mortgage and auto loan markets.
Credit unions with balance transfer promotions in place or in the pipeline may be best positioned to benefit from the current economic trends, already offering lower credit card interest rates just when CU members may be actively looking.
"I think that our credit unions have always had competitively priced cards," observed a credit union league staff member who declined to be named because she was not authorize to speak to the press. "But in past years, their members might have had to look harder for them. We have really worked hard with our credit unions to help them highlight their cards for their members."
For example, TNB reported that credit unions participating in the balance transfer promotion saw an overall 3.8 % response rate. About 40 of its client credit unions participated in the promotion, some offering balance transfers at a lower interest rate for a limited time or the life of the balance.
TNB reported that credit unions offering the lower interest rates for the life of the transferred balance saw the strongest response, bringing in an average balance transfer of $3,590. That was $895 more than balance transfers where TNB credit unions offered the lower balance transfer rate for a more limited time, the card processor reported.
Shell Federal Credit Union, in Deer Park, Texas, was one of the stars of the promotion. TNB reported that Deer Park had increased its card balances by $500,000 so far, halfway to its goal of increasing its overall card portfolio balance by $1 million.
The $284 million credit union averaged $3,383 per transfer check and a 4.0% response rate, representing a 58% increase in responses over its previous LOB rate offer in early 2007, TNB reported.
"The balance transfer promotion and LOB rate were strategic recommendations TNB made in 2007 when we revamped our portfolio, which has paid off handsomely for us," said Sharon Hicks, credit card services manager for Shell. "This is the second time we've offered a balance transfer rate for a balance transfer promotion. Together the two balance transfer rate offers increased our balances to $8.8 million."
Hicks added, "For a modest investment in the promotion, we achieved an incredible rate of return, plus we gave our members another reason to count on us to provide them with products and services that they need."
TexasOne Community Credit Union of Houston achieved a remarkable 5.97% response rate with its LOB rate offer. With an average transfer of $3,694, the credit union brought in more than $380,000 in new card balances.
"We achieved a 34% increase in the amount transferred with the life of balance offer rate compared with the last balance transfer promotion we offered," said Helen Blaylock, senior vice president of card services for TexasOne Community Credit Union. "The life of the balance rate enabled us to give our members a much-needed financial break, which is evident in the favorable response we received from the offer."
Balance transfers were also a part of the approach that the $52 million DOT Federal Credit Union, headquartered in Poughkeepsie, N.Y., adopted under the advice of their processor, PSCU Financial Services.
Prior to 2006, the only marketing activity the credit union offered was mailing convenience checks with the plastic. But PSCU suggested they offer credit line increases, balance transfers, account activation and account acquisition promotions. In just two years, PSCU and the credit union reported that average balances up 17% and the credit union's return on investment sat at a respectable 4.29%.
"Working with the PSCU's portfolio consultants was an eye-opener," said Marketing Coordinator Melissa Troiano. "We were pleasantly surprised to learn how successful our marketing efforts were in increasing balances. Now, armed with their in-depth evaluation of our portfolio and recommendations, we are making strategic decisions that will both grow our membership and help ensure a healthy balance sheet."