Credit card portfolios have had a rough go at things the pastcouple of years.

Even with all the media attention on credit union credit cardsin 2010, they grew just 2% that year. The previous five-year trendwas an annual average growth rate of 10% to 12%.

Several elements came together to slow credit union card growth.First, the impact of the CARD Act, followed by the economic issues,high unemployment and housing crisis, left many credit unions inultra conservative positions with their lending if not hounded byregulations and auditors, especially in the area of unsecuredcredit card lending.

And, let’s not forget the ramifications of the Durbin Amendment regulation in 2011, of which the impact isbeginning to rear its ugly head, but in an odd way, will beshifting more usage and focus back to credit cards.

If credit unions continue to neglect their credit card program,they may find themselves in a situation that may be difficult toturn around. This is not the year to place your program on autopilot. This is the year to place your credit card at the forefrontof your product offerings. Here are a few things toconsider.

First, 2012 will see credit cards rise. The debit cards andcredit cards are the seesaw of the banking payment playground.Sometimes one is up and the other is down and vice versa. Thisyear, credit cards will be on the up and credit unions should beprepared for this.

From my perspective, credit cards are the preferred productbecause of three sources of income: finance charge, interchange andfee income. Finance charges represent an average of 70% of totalcredit card program revenue. Sure, the debit card gets usage andinterchange, but the finance charge income is what reallycontributes to the credit unions bottom line.

Consumers have also become more aware of improved financialmanagement in the past few years as evidenced by increasing creditscores. Experts are predicting that 2012 will see a huge shift fromdebit card to credit card usage. Granted, consumers have learnedand will be using credit cards more responsibly. When usedcorrectly, credit cards can remain free and offer rewards or cashback.

Credit unions should heed this message as banks are offeringincreasingly valuable reward programs, 0% balance transfer offersand direct mail is back to pre-recession levels. Balance transferpromotions should be an ongoing staple at your credit union,stressing no balance transfer fees. First quarter is typically theideal time for optimal results, but in this day and age, thepromotion should be ongoing.

Second, rewards programs are likely to become even moreimportant. Those offered by credit union need polishing andupdating. Processors need to step up and offer credit unions rewardprograms that can compete with the ever enticing bank card rewardprograms.

A recent visit to the United Continental Terminal at O’Hare International Airport found humongous Chase Bank bannershanging from the ceilings and virtually everywhere you looked.Credit card reward programs touting no security line waiting,airline lounge access, companion passes and free checked bags – allbeing marketed to a captive audience standing in the slow movingsecurity line.

It is way overdue that processors need to step up and revamp thecanned reward programs offered to credit unions. Those programscreated 15-plus years ago are losing their competitive advantage.Sure, they were great when they came out, with airline rewardtickets on any airline, no blackout dates, the ability to earnmiles on free tickets and an expansive selection of trinkets,gadgets, electronics and for those who dare, the gift cards. Butnow, we are contending with airline bank card reward programs –and, they are enticing. Credit card processors need to get to workon this for credit unions.

Third, 2012 will see the increasing rise of prepaid cardprograms. Popping up all over the place are mono-line prepaidissuers, including January 2012 debut of Suze Orman’s brand new“approvedcard.” These products are effective with a limited market,typically the unbanked or under-banked. No need to be concernedabout direct competition with credit cards, but a plan should be inplace to foster what credit unions do best: the complete memberfinancial relationship and education.

One prepaid card does not make a banking relationship. Sure,members may like a prepaid card on occasion as a gift or fortravel, but your members will not likely shift to a prepaid productas a mainstream banking product. These prepaid cards are a stop gapand do benefit the consumer with establishing and improving credit.The same lessons a prepaid product offers is right there with yourchecking and debit card programs and in most cases, are feefree.

There is likely a small segment of under-banked consumers withinyour membership and it is your job to prepare this segment for thereal world of finance including building credit, managing achecking account, attaining their first loan and building alife-long relationship. A prepaid product will not help accomplishany of this and your members should be educated.

Therefore, I suggest utilizing a combination of a credit anddebit card strategy specific to your under-banked members focusingon the entire member relationship – one to help build credit andone to help learn transactional banking.

After all, relationship building and fostering a sense offinancial education and knowledge for their members are what thecredit union industry does best. 

Ondine Irving is president of Card Analysis Solutions.
Contact 847-295-2051 [email protected]