Card management consultants working with a payment processingCUSO and association are working to convince credit unions to lookmore deeply into their card members data to help the credit unionsimprove their card portfolio management decisions.

Both The Members Group, a card processing CUSO affiliated with theIowa Credit Union League, and Card Services for CreditUnions, an association of credit unions which process paymentswith FIS, have authored white papers in conjunction withconsultants that urge credit unions to begin using big data to helpmanage their card portfolios as well as other products andservices.

Written in conjunction with its data analysis partner, IQRConsulting, the TMG white paper, “Data Analysis Pointsthe Way Forward for Card Management Teams,” argued thatanalyzing the payment behavior of card holders can help portfoliomanagers cut costs, increase the cardholders use of the creditunion's card, cross sell cards to noncardholding members anddetermine which cardholders would be most likely to respond to agiven promotion or incentive.

For example, in one case the white paper discussed a creditunion that feared its credit cards were being priced too low andturned to data analysis for additional insight into the question.After analyzing member transaction data, the credit union wasconvinced to re-evaluate the relatively few nonprofitable cardaccounts and to enhance service and marketing to the bulk ofcardholders whose accounts were profitable but not as much as thecredit union needed them to be. This strategy would avoid a riskyrate increase that could eroded the cardholders preference for thecard. It also cut costs on the portfolio.

The Card Services for Credit Unions paper, “Member Segmentation Improves YourBottom Line,” said using data to segment member bases can helpa credit union target members with the best products andservices.

“There are plenty of ways to use segmentation analytics to findmembers that will respond to new opportunities and cross-sellingefforts. For example, consider high-usage cardholders,” theassociation wrote. “Notice their spend patterns,” the paper quotedDean Knudtson, senior consultant for CSCU. “Can you offer them abusiness card and realize a higher level of interchange? Or look atthe spend patterns with your rewards cardholders. Can you shifttheir spend patterns to higher interchange merchants by segmentingthem, and offering bonus points to shop at higher interchangemerchants?”

Knudtson also suggests breaking out lower FICO score members.“It might make sense to offer these members a secured card withlimits equal to a deposit, thereby reducing your risk exposurewhile offering a great product to members who may be rebuildingcredit or establishing credit for the first time,” he adds. “Thisis also a perfect way to stay true to the industry's mission ofpeople helping people.”

The sorts of member segmentation and planning that both papersdescribe fall loosely into what is commonly known as big data, apopular term for the collection and use of massive amounts oftransaction and payment data and to help assess and predictconsumer attitudes and behaviors. It is the information sciencebehind such online giants as Google and Facebook, as well as allthree national credit bureaus, and now, the consultants suggested,it could be put to use helping credit unions better serve theirmembers.

“This technology is new enough that a lot of our work with aninterested credit union revolves around helping them understand thequestions that could be answered and then helping them formulatethose questions,” said Todd Herren, chief technology officer forTMG.

Most credit union executives, Herren explained, are used tothinking about data primarily in demographic terms and in termsdefined by the national credit bureau's credit scores. Most have noidea of how powerful a tool in card management data generated everytime a member swipes their credit card could be. For example, acredit union contemplating offering professional sports teamstickets in a sweepstakes to drive credit card use could mine itscardholder data to find out how many cardholding members use theircards to routinely purchase sporting event tickets, sportsequipment or gym memberships. Presumably, those members might usetheir cards more often to try to win tickets to a football orbasketball game, he noted.

“Segmentation allows you to spend valuable marketing dollars oncampaigns that target those members and cardholders who are mostlikely to respond, which greatly improves your marketing ROI,” saysBarney Moore, senior portfolio consultant with CSCU. “Improvedrevenues aside, segmentation is simply a better way to understandthe needs of members in general and add value to their memberexperience.”

With a combination of the right analytics tools, thoughtfulevaluation of the results and solid PAU strategies, credit unionscan execute more effective targeting and overall growth. “It's agood exercise for better understanding the make-up of yourportfolio and managing it more effectively. The key is not treatingall accounts the same way,” added Moore.

The technology is sophisticated and specialized enough as well,according to Karan Bhalla, consulting director for IQR, that itremains beyond the reach of all but the largest credit unions,which have the resources to seek out and keep employees with thespecialized skills to do this sort of work.

In addition, the technology is not without its critics. Criticsof the technology in other industries have noted that getting bigdata does not guarantee the end user knows what to do with it, andprivacy activists have questioned the necessity of collecting sucha large amount of data about what could be personal behavior.

But Bhalla dismissed the privacy concerns, noting that there arealready opt out procedures in place in several areas that letconsumers keep their data from being collected in big data searchesand he welcomed still others.

“From our perspective, opt-out procedures are a good thing sincewe only want to work with consumers who want their information tobe part of bringing them better products and services. Everyconsumer who doesn't want that and who opts out shrinks the overallpool that I have to work through to find the others.”

But Ondine Irving, a noted credit union card consultant whohelps credit unions manage their card portfolios by managing theirprocessing expenses, questioned the wisdom of credit unionsadopting such an sophisticated and potentially expensive techniqueto drill down in member data when many still do not control theircosts at the portfolio level.

“The overall portfolio analysis is the first step tounderstanding cardholder behavior–and unfortunately the status ofquo of garbage in/garbage out is creating an industry of inaccuratedata for [use in] program analytics,” Irving wrote in an emailabout the use of big data. “For example, when credit unions do notzero out outstanding credit lines on closed, lost, stolen andbankrupt accounts, the key metric of credit utilization ratios andaverage credit lines misleads the credit union into making wrongmarketing decisions. Many credit unions are inaccurately reportingtotal credit line liability by as much as 20% due to lack ofoverall card program management techniques and best practices. Theprocessing system does not realize this. Therefore, the data theprocessors use is inaccurate to start with.”

“The bottom line is there are two types of cardholderbehaviors–transacters and revolvers. Considering up to 70% of acard portfolios revenue should be coming from finance charge incomeand card loan balances and less than 25% of revenue is derived frominterchange income, it would remain prudent for credit unions tofocus on cardholder behavior at the portfolio level, providing theinput of data is correct in the first place.”