Speaking to participants in a recent Web event sponsored by the association, CSCU President Robert Hackney both reported on the strength of credit union card programs and urged CUs not to pull back on credit cards in the continuing economic downturn.
Hackney placed credit union card programs firmly in the trend toward electronic payments, a move which is only strengthening. According to The Nilson Report, a service that tracks economic and payment trends, credit and debit cards now account for 45% of the roughly $8.42 billion in payments that Americans make each year, Hackney said, and if ACH and other electronic payments are included in the mix, the figure climbs to 62%.
This shift has come in part at the expense of cash but mostly at the expense of paper checks, he noted, adding that "electronic payments have become key to credit unions attracting members and holding them."
Hackney reminded participants that both the credit card industry overall and the credit union card industry in particular have remained strong even as the economy started to dip.
According to data supplied by Visa USA for 2007, credit union card programs make a greater percentage of the card income from finance charges than do
card issuers overall (75% of the income of CSCU member card programs comes from finance charges versus 64% of the income at other card issuers) and less money from fees.
Overall card issuers made 16% of their card
income from penalty fees (7%), cash advance fees (5%) and annual and other fees (4%), whereas credit unions made only 5% of their card income from all three fees combined.
Hackney also reiterated that credit unions need to keep their card losses to fraud in perspective. Both overall and credit union card issuers lose far more money on their card income to charge offs than they do to fraud.
"I don't want to suggest that fraud is not a serious problem or that we should not fight it hard," Hackney said, "but we should keep in mind that it is not the biggest card expense."
The underlying numbers have helped credit union card programs see some of the strongest numbers they have in years. According to CSCU, finance charge revenue at its member credit unions rose 31% from 2003 to 2007, interchange revenue moved up by 30% and fee revenue increased by 33%.
These numbers allowed credit unions to far outpace competing issuers. From 2006 through June 2008, outstanding balances in credit union card accounts increased roughly 12.3% and only roughly 3.4% in bank card accounts.
Hackey found these figures particularly satisfying because they represented credit unions catching up with the rest of the card industry in terms of outstanding balances.
In 2003, the gap between outstanding balances in credit union card portfolios and overall industry portfolios was $775, with CUs at $1,879 and $2,654 for the industry overall. But by the end of 2007, the gap had narrowed to $254, and credit unions appeared poised to overtake the industry averages by the end of 2008.
Since 2003, Hackney noted that CSCU has upgraded CU card portfolios to platinum card programs and pushed forward with balance transfer programs.
"One thing the data show is that if you are willing to give a member a checking account, you should be willing to give them a debit card," Hackney said. "Too many credit unions are still leaving money on the table by not getting debit cards into the hands of enough of their members."
Debit cards, he pointed out, make credit unions money every time they are used whereas checks cost them money every time they are used.
Looking into the future, Hackney urged CUs to
keep an eye on the different legislative proposals to restructure and cut card interchange income. Card interchange income brings $3 billion to credit unions, Hackney pointed out, and represents roughly 36% of noninterest income.
He also highlighted evidence that credit unions can be effective in lobbying on the interchange question. Bills that would have cut interchange income were making progress on Capitol Hill, until the industry, including credit unions and community banks, voiced their concerns, Hackney said.
Bill Lehman, CSCU's portfolio consultant, added that the idea that credit unions should stop or sharply cut back on their credit card lending during these topsy-turvy times a "myth." Instead, credit unions need to stick to the careful underwriting, introduce risk-based pricing into their card programs if they have not already done so, and be quick to address cardholder delinquency problems.
Credit unions need to reach out to cardholders when they first become delinquent to offer them potential solutions before their problems worsen, Lehman urged.
CUs should also recognize that many of their members with good credit are likely frustrated with their bank card issuers. Reaching out to dissatisfied bank credit cardholders is a significant opportunity to increase CU card penetration, Lehman said.