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ARLINGTON, Va. – As the question of whether or not a credit union should sell its card portfolio remains active, more credit unions which have had success with their card programs have stepped forward to tell others how they have done it. Executives from three credit unions, the $4.7 billion Orange County Teachers FCU, the $394 million Northeast Credit Union and the $181 million NAPUS Credit Union, all shared different aspects of their card success during an Internet seminar Callahan and Associates offered in mid-May. The message from the seminar: don’t give up on your card portfolio. Instead make a plan, build your cards into your credit union’s overall product structure and promote the heck out of it in order to start to see your portfolio yield grow. It is a message which, according to Callahan and Associates’ data, more credit unions need to hear. Jay Johnson, executive vice president with Callahan’s, told the executives from more than 70 credit unions that attended the seminar that while credit union’s credit card balances have grown since 1997, the pace has slowed and almost stalled at $22 billion for the industry overall. One reason balances have stalled, Johnson explained, is because the overall number of credit cards held by credit union members has fallen. Credit union card accounts stood at roughly 13.3 million at the end of 2000 but has fallen by 500,000 to 12.8 million as of the end of 2003. This decline has also been reflected in card penetration, Johnson explained. The percentage of credit union members who have their institution’s card dropped from 18.5% in 1997 to 15.3% at the end of 2003. Johnson pointed out that part of the penetration drop could also be reflected in the relatively strong growth in credit union membership and a lag between joining the credit union and taking full advantage of all the credit’s union’s products. “Obviously many new credit union members take some time to develop that relationship and take advantage of the full range of credit union products,” Johnson said. Roughly 50% of credit unions currently offer a card program, he added, and it is essential that more credit unions understand their card portfolios and how to improve them. Rudy Tafoya, vice president of consumer lending for Orange County Teachers FCU, headquartered in Santa Ana, Calif. said that putting a solid marketing plan into place for their credit cards and sticking to it was key to helping turn around a strong program that had started to falter. Prior to 2003, Tafoya explained that the credit union had held planning sessions on a more or less promotion-by-promotion basis and not really followed through with an 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’s 130,000 cards slow from 11% in 2000 to 6% in 2001 to 1% in 2002. Faced with the stumbling portfolio, Tafoya described how the credit union had adopted a strategy based on systematic planning in 2003. The plan aimed to grow card balances and to lift the credit union’s card to be the top card in the member’s wallet. The two primary approaches the credit union used were a 5.9% balance transfer offer that would last over the course of the transferred balance and some promotions targeted to travel and the holidays. The credit union staggered the plan over the course of the year, offering the balance transfer offer in the first quarter, a promotion targeted to summer travel in the second quarter, both the balance transfer and travel promotion in the third quarter, and the balance transfer and a shopping promotion in the last quarter. Tafoya said the credit union did not yet have a rewards program to offer its members, but planned to have one in place by the end of 2004. That program will carry an annual fee, even though the credit union’s other cards, which include the full portfolio of VISA products, do no require a fee. The promotional effort provided tremendous success. The first, third and fourth quarter saw balance growth of $10 million, $8 million and $12 million. The second quarter brought n increases of only $3 million, which Tafoya attributed to members transferring balances in the first quarter, using other cards that probably offered good promotional offers for the summer and then coming back to the credit union’s low balance transfer rate in the third and forth quarters. The credit union offered the travel and shopping promotions by using merchant numbers for airlines, hotels and certain malls to set the finance rate for any of the purchases made at those stores at only 5.9%. Significantly, Tafoya said that Orange County Teachers had offered the balance transfer promotion to all its cardholding members and had not pre-screened the offer, which brought between a 3% and 6% return. The credit union had also decided 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 not make the best decision for the credit union. Sticking with the marketing plan is the name o the game, he said. “We have marketing meetings twice a month to review how things are going and get feedback from members of the team and from our membership,” Tafoya said. “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 other credit union products, according to Mike Chisholm, the CU’s vice president of lending. Chisholm told the seminar that the credit union had seen about 33% growth in its Classic and Platinum cards since 2000 and that it had used a staggered cash back rewards program 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 rewards program that offers one point for every dollar added to the balance, Chisholm explained. But the key difference is in how the credit union ties its 18,000 card accounts to the rest of its products. The Classic cards, which represent the bulk of the $40 million portfolio, have two rates, a regular rate and a relationship rate. The relationship rate is 2% lower than the regular rate on the card and cardholders need to have another loan with the credit union to qualify, Chisholm explained. “It doesn’t matter what the product is,” Chisholm said, “but they have to have another loan with us.” In addition, the credit union offers VISA cardholders a .25 point reduction in their rates on other consumer loans. The Platinum Visa card has a low fixed rate, and Platinum cardholders have one of the balance requirements for the credit union’s so-called relationship checking product waived. Relationship checking rewards members for having either $5,000 in share balances or loan balances exclusive of their VISA accounts, Chisholm explained. Chisholm credited the relationship marketing of the card with much of the 33% increase in balances since 2000 and with increasing the credit union’s card penetration to 42% since 2000. But Elaine Ethier, director of lending for NAPUS FCU, headquartered in Alexandria, Virginia, told the seminar that penetration alone is not enough. With 30,000 members, NAPUS serves the National Association of Postmasters of the U.S. and has credit card penetration of more than 66% percent. But despite that penetration, the credit union has had to fight to keep its twelve-month average balance growth at better than 14%. The credit union offers a Classic, Gold and Platinum card and does not use relationship pricing, Ethier reported. The credit union does not charge an annual fee on any of its cards, but does implement an inactivity fee on cards that do not have at least 10 transactions per year. Ethier attributed the card penetration to loyalty from the credit union’s membership and to a program which offers a Classic credit card to all new members of the credit union. The program also waives the small fee to join the credit union for anyone who takes the card. “Our card application and membership application are on the same sheet of paper,” Ethier said, “so it’s obvious and easy to do at the same time.” To re-energize an already well penetrated product, Ethier told the seminar that the credit union had adopted a couple of approaches to get cardholders to upgrade their card accounts from the older Classic and Gold accounts and into Platinum. Classic cardholders were sent a letter which told them that there card accounts were being upgraded to Platinum unless they opted out and said they wanted to keep their Classic cards. Gold card holders were sent a letter offering them the chance to opt into the Platinum program. The result was that Platinum balances increased by $10 million, even as the balances on Classic cards dropped by $3 million and Gold by $2 million. The credit union also implemented a targeted credit line increase of $2000 per card and a balance transfer offer of 2.9% for nine months, along with several sweepstakes offers. Ethier and the other executives insisted that cards can be a strong credit union product, provided the credit unions are willing to take the time and pay the attention they need to learn and market their portfolios. -

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