While it remains too early to declare victory, there are signs that credit union credit cards are poised to move from the background of credit union lending to take a position closer to the spotlight, according to industry card specialists.
One of these specialists is Bill Lehman, vice president of portfolio consulting services at Card Services for Credit Unions. A longtime CU card adviser, Lehman admits to a history of finding the glass both half-empty and half-full when it comes to credit union credit card programs. Card Services for Credit Unions is the association of credit unions that process their card accounts with FIS. It accounts for the majority of card-issuing credit unions.
On the glass half-full side, credit union cards, overall, have never been better managed or marketed or carried a better reputation with consumers. And this is what helps him see a brighter future looming. On the glass half-empty side, Lehman maintains, far too many credit unions still fail to market their cards to reach their potential, despite consistently making up between 5% to 7% of an average credit card-issuing CU's loan portfolio.
“Since credit cards only account for 5% to 7% of their loan portfolio, sometimes it feels a bit like they get only 5% to 7% of their attention,” Lehman remarked ruefully.
The reality Lehman acknowledged is that while credit cards represent among the best performing, if not the best performing, credit union loan assets, they can also be among the most time consuming and complicated. Unlike, say, an auto loan that can be made and then require minimum servicing, unless it falls into delinquency, a credit card is more of an ongoing relationship than merely a static loan.
For example, Lehman pointed out merely getting a member to apply for and then receive a credit union-issued credit card is only the first step. Then, a card-issuing CU has to get the member to activate the card and then make the CU card top of wallet.
Afterwards, there are other elements of a card relationship: a rewards program, a balance transfer offering and marketing programs tied to certain seasons of the year or events. For example, in late summer a card issuer with an educational field of membership might offer its cardholding members a lower interest rate or greater rewards on items that qualify as back to school. All those different elements require planning, budgeting, time and attention, and that can discourage CUs from taking a more active card management role.
In addition, credit card programs also carry a historic stigma of being difficult to manage. In previous years, FIS, First Data and other processors would sometimes give card-issuing credit unions with complicated and incomprehensible reports from which they were supposed to glean information on everything from their rates of usage to potential fraud problems and profitability of their card accounts. In practice, credit unions would often throw up their hands and make an attempt to understand them or sometimes just ignore them, with the result of CU card portfolios often languished or slid in value until they might have been sold to a card-issuing bank.
But on the half-full side of the glass, that attitude has largely changed, thanks in part to CSCU and payment processing CUSOs taking steps to humanize and decipher the processor's data for credit union card issuers, Lehman explained. In addition, credit unions have become more confident that their credit card programs are good opportunities for consumers. This and other changes have allowed Lehman to see the credit card glasses as more full than empty.
“I think there are a couple of things credit cards have had to overcome at credit unions,” Lehman said. “First, unlike other loans, they are unsecured debt and that always has an additional element of nervousness with it. Second, sometimes credit unions felt their credit card offerings really couldn't compete very well with the offerings from the big banks.”
Both those things have changed somewhat, Lehman said. Credit cards remain unsecured debt, but intelligent card management can substantially reduce their risk to the credit union. And the CARD Act and events surrounding Bank Transfer Day have helped more credit unions understand that their cards are really a good deal for consumers.
The Credit Card Accountability, Responsibility and Disclosure Act became law in 2010 and outlawed some of the practices of many large card issuers.
“A credit union can go to its members, particularly those with a credit card issued by a large bank card issuer, and confidently offer them a card which will save them money, carry fewer fees and will come from an issuer they can trust,” Lehman said. “They have always been able to do that in the past, but now more CUs feel willing to do it.”
Further, Lehman pointed out that one side effect of the surge of consumer interest in credit unions has been a rise in credit union deposits. A strong credit card program can provide an efficient means of moving some of that additional liquidity into loans, he noted.
Tom Chandler, director of AdvisorsPlus Strategic Consulting for PSCU financial services, a leading payment CUSO, largely agreed about the horizon looking brighter for CU card programs.
Like Lehman, Chandler pointed out CUs are feeling more confident about their card offerings, both that their cards represent a better deal for consumers and that credit cards can play an essential role in member households.
“Credit cards are definitely moving up on the list of different loan offerings credit unions make to their members,” Chandler remarked. Historically, credit cards have tended to be among the last loan product that a CU might offer members, and some credit unions didn't really offer them at all, he said. They merely had one in case members asked, but they really didn't market their credit card actively. But now, more credit unions feel comfortable making the case that their card is member friendly and a very good deal, Chandler said. “They can say they have a credit card that is worth opening and worth using to pay off balances on other cards,” he added.