Cutting Card Program Costs
When considering how to save money in the back office, some say too many credit unions retreat from looking carefully at their credit and debit card program, often believing the portfolios are too complicated to understand or manage more efficiently.
Some card consultants, either with processing firms, CUSOs or independent, argue against this misconception, contending that credit unions can and should manage their card programs with cost management in mind.
There are a few tips credit unions can follow to take more command of their card program costs, according to Ondine Irving, card consultant and owner of Card Analysis Solutions, a Chicago-based consultancy that advises credit unions on card management.
First, designate at least one staff member as having responsibility for the card program, knowing how it works and having the ability to understand the data it generates.
“The card program doesn't have to be that staff member's full time job,” Irving said. “But the program needs to be the responsibility of the same person or people consistently.”
Irving said the position might require training and that there is no more valuable resource than having experience working with a card portfolio.
“The card manager needs to know how a portfolio has performed in the past in order to evaluate the impact of any card management changes the credit union has introduced,” she said, adding this comes best with experience.
Second, credit unions that have pass through card processing need to make sure that their core processors can provide the reports about the card performance that they need, Irving said. Pass through processing is when a credit union processes its card transactions via their core processors. This is in contrast to processing their card transactions through a third-party processor.
“This decision [whether to adopt pass through or third party processing] comes down to the ability of a credit union’s core processors ability to handle the intricacies of card portfolio management and more importantly, the measurement of the hundreds of categories required in order to measure and track a program’s performance,” Irving explained.
Irving said if a credit union’s core processor cannot handle this and supply the necessary reports, a better bet is to go with a third party vendor. A thorough analysis on a pass through platform can be most challenging for a credit union because most often, the necessary data has never been tracked, she added.
Third, if a credit union is going to use a third-party card processor, a card manager can help decide whether to buy processing services on a bundled or à la carte basis. Bundling the processing services can be attractive since it can take a larger number of card management tasks out of the credit union's hands, according to Irving.
It can also be expensive, costing $10 to $12 per account, whether the account is closed or not, Irving said. Sometimes, it might be less expensive to figure out which services the credit union could more efficiently handle itself and which ones really needed to be bundled.
The fourth tip, while common knowledge among most credit unions, is not done enough, some consultants have noticed. If a credit union is using a third-party card processor, it should make sure that the processor is regularly purging their file of old, closed, inactive or otherwise dormant accounts since credit unions will often be charged on the basis of all accounts, not just the open ones.
“In too many cases, credit unions wind up paying for accounts that aren't bringing them income,” Irving said, adding that if a file has not been purged in some time, some processors may have started charging money for the purge.
She and other consultants still advise credit unions to take the purge since it will yield a much sharper picture of their card portfolio performance as well as cut their costs.
Finally, Irving urged credit unions to remain focused on key indicators of card performance as a key to keeping card program costs lower and income higher.
Traditional measures of card portfolios such as penetration percentages, which are the number of members that hold a credit union’s card, or number of card accounts opened can be misleading, some consultants have said. The reason is because the measures don't focus on the parts of the card portfolio that make money.
“Credit unions need to remember that an open card, even an open, activated card, is not a card that makes them money unless a member uses it,” observed one consultant who works with a card processor and spoke on the condition of anonymity. “A merely open card that sits in a member’s wallet or purse doesn't make them money, it costs them money.”
Instead, some consultants have urged card issuing credit unions to keep sharply focused on solid underwriting to minimize credit risk and marketing programs that build balances on the card accounts as those are the ones that will make bring in revenue through their card programs.