ARLINGTON, Va. – As the question of whether or not a creditunion should sell its card portfolio remains active, more creditunions which have had success with their card programs have steppedforward to tell others how they have done it. Executives from threecredit unions, the $4.7 billion Orange County Teachers FCU, the$394 million Northeast Credit Union and the $181 million NAPUSCredit Union, all shared different aspects of their card successduring an Internet seminar Callahan and Associates offered inmid-May. The message from the seminar: don't give up on your cardportfolio. Instead make a plan, build your cards into your creditunion's overall product structure and promote the heck out of it inorder to start to see your portfolio yield grow. It is a messagewhich, according to Callahan and Associates' data, more creditunions need to hear. Jay Johnson, executive vice president withCallahan's, told the executives from more than 70 credit unionsthat attended the seminar that while credit union's credit cardbalances have grown since 1997, the pace has slowed and almoststalled at $22 billion for the industry overall. One reasonbalances have stalled, Johnson explained, is because the overallnumber of credit cards held by credit union members has fallen.Credit union card accounts stood at roughly 13.3 million at the endof 2000 but has fallen by 500,000 to 12.8 million as of the end of2003. This decline has also been reflected in card penetration,Johnson explained. The percentage of credit union members who havetheir institution's card dropped from 18.5% in 1997 to 15.3% at theend of 2003. Johnson pointed out that part of the penetration dropcould also be reflected in the relatively strong growth in creditunion membership and a lag between joining the credit union andtaking full advantage of all the credit's union's products.“Obviously many new credit union members take some time to developthat relationship and take advantage of the full range of creditunion products,” Johnson said. Roughly 50% of credit unionscurrently offer a card program, he added, and it is essential thatmore credit unions understand their card portfolios and how toimprove them. Rudy Tafoya, vice president of consumer lending forOrange County Teachers FCU, headquartered in Santa Ana, Calif. saidthat putting a solid marketing plan into place for their creditcards and sticking to it was key to helping turn around a strongprogram that had started to falter. Prior to 2003, Tafoya explainedthat the credit union had held planning sessions on a more or lesspromotion-by-promotion basis and not really followed through withan overall vision for the portfolio. This meant that, for example,even though the credit union's card penetration ran more than 40%,the credit union saw balance growth among the credit union's130,000 cards slow from 11% in 2000 to 6% in 2001 to 1% in 2002.Faced with the stumbling portfolio, Tafoya described how the creditunion had adopted a strategy based on systematic planning in 2003.The plan aimed to grow card balances and to lift the credit union'scard to be the top card in the member's wallet. The two primaryapproaches the credit union used were a 5.9% balance transfer offerthat would last over the course of the transferred balance and somepromotions targeted to travel and the holidays. The credit unionstaggered the plan over the course of the year, offering thebalance transfer offer in the first quarter, a promotion targetedto summer travel in the second quarter, both the balance transferand travel promotion in the third quarter, and the balance transferand a shopping promotion in the last quarter. Tafoya said thecredit union did not yet have a rewards program to offer itsmembers, but planned to have one in place by the end of 2004. Thatprogram will carry an annual fee, even though the credit union'sother cards, which include the full portfolio of VISA products, dono require a fee. The promotional effort provided tremendoussuccess. The first, third and fourth quarter saw balance growth of$10 million, $8 million and $12 million. The second quarter broughtn increases of only $3 million, which Tafoya attributed to memberstransferring balances in the first quarter, using other cards thatprobably offered good promotional offers for the summer and thencoming back to the credit union's low balance transfer rate in thethird and forth quarters. The credit union offered the travel andshopping promotions by using merchant numbers for airlines, hotelsand certain malls to set the finance rate for any of the purchasesmade at those stores at only 5.9%. Significantly, Tafoya said thatOrange County Teachers had offered the balance transfer promotionto all its cardholding members and had not pre-screened the offer,which brought between a 3% and 6% return. The credit union had alsodecided not to use employee incentives for the credit card program,a move Tafoya put down to the credit union's wanting the members'interest to be paramount, even if that meant the member might notmake the best decision for the credit union. Sticking with themarketing plan is the name o the game, he said. “We have marketingmeetings twice a month to review how things are going and getfeedback from members of the team and from our membership,” Tafoyasaid. “But we stick with our overall marketing plan and goals.”Northeast Credit Union, headquartered in Portsmouth, New Hampshire,achieved its card success by tying the card closely to its othercredit union products, according to Mike Chisholm, the CU's vicepresident of lending. Chisholm told the seminar that the creditunion had seen about 33% growth in its Classic and Platinum cardssince 2000 and that it had used a staggered cash back rewardsprogram on its cards to help drive the growth. Northeast offers 1%cash back on its classic cards with balances over $2,000 and 0.5%cash back on Platinum cards with balances over $5,000. In addition,the Platinum card program has a travel and merchandise rewardsprogram that offers one point for every dollar added to thebalance, Chisholm explained. But the key difference is in how thecredit union ties its 18,000 card accounts to the rest of itsproducts. The Classic cards, which represent the bulk of the $40million portfolio, have two rates, a regular rate and arelationship rate. The relationship rate is 2% lower than theregular rate on the card and cardholders need to have another loanwith the credit union to qualify, Chisholm explained. “It doesn'tmatter what the product is,” Chisholm said, “but they have to haveanother loan with us.” In addition, the credit union offers VISAcardholders a .25 point reduction in their rates on other consumerloans. The Platinum Visa card has a low fixed rate, and Platinumcardholders have one of the balance requirements for the creditunion's so-called relationship checking product waived.Relationship checking rewards members for having either $5,000 inshare balances or loan balances exclusive of their VISA accounts,Chisholm explained. Chisholm credited the relationship marketing ofthe card with much of the 33% increase in balances since 2000 andwith increasing the credit union's card penetration to 42% since2000. But Elaine Ethier, director of lending for NAPUS FCU,headquartered in Alexandria, Virginia, told the seminar thatpenetration alone is not enough. With 30,000 members, NAPUS servesthe National Association of Postmasters of the U.S. and has creditcard penetration of more than 66% percent. But despite thatpenetration, the credit union has had to fight to keep itstwelve-month average balance growth at better than 14%. The creditunion offers a Classic, Gold and Platinum card and does not userelationship pricing, Ethier reported. The credit union does notcharge an annual fee on any of its cards, but does implement aninactivity fee on cards that do not have at least 10 transactionsper year. Ethier attributed the card penetration to loyalty fromthe credit union's membership and to a program which offers aClassic credit card to all new members of the credit union. Theprogram also waives the small fee to join the credit union foranyone who takes the card. “Our card application and membershipapplication are on the same sheet of paper,” Ethier said, “so it'sobvious and easy to do at the same time.” To re-energize an alreadywell penetrated product, Ethier told the seminar that the creditunion had adopted a couple of approaches to get cardholders toupgrade their card accounts from the older Classic and Goldaccounts and into Platinum. Classic cardholders were sent a letterwhich told them that there card accounts were being upgraded toPlatinum unless they opted out and said they wanted to keep theirClassic cards. Gold card holders were sent a letter offering themthe chance to opt into the Platinum program. The result was thatPlatinum balances increased by $10 million, even as the balances onClassic cards dropped by $3 million and Gold by $2 million. Thecredit union also implemented a targeted credit line increase of$2000 per card and a balance transfer offer of 2.9% for ninemonths, along with several sweepstakes offers. Ethier and the otherexecutives insisted that cards can be a strong credit unionproduct, provided the credit unions are willing to take the timeand pay the attention they need to learn and market theirportfolios. -

[email protected]