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By now, most credit unions are beginning to realize the value of keeping their credit card portfolios. Fewer credit unions treat their credit cards as orphans and steadily greater numbers of credit unions have created Card Services and Electronic Services departments. In this day and age of emerging electronic payment technology, if there is not yet a Card Services or Electronic Services Department within your organizational structure, today would be a good time to start putting one together. There are numerous ways a credit union can optimize income, reduce expenses and increase the activity of their card program; it simply requires commitment, knowledge and expertise. Yes, credit cards can carry higher risk. But the emergence of risk-based pricing for credit cards and the flexibility to vary enhancements, rates and fees on a single core program (Platinum), have reduced the risk and increased the income sufficient to make card programs even more profitable. In general I find five key measurement ratios most helpful in determining whether a credit union card portfolio is primed for growth. Here they are. The percentage of your members who carry your credit card is not really a useful number and definitely less useful than the ratio of your outstanding credit card loans to the credit union’s overall assets. So one of the best things you can do is to begin measuring your card program by the percentage of card loans to total assets which is typically in the 5%-6% range. The real indicator of the strength of a credit union’s card portfolio comes from the credit card loans outstanding, and more importantly the percentage of card loans-to-total assets. I strongly recommend that credit unions not compare themselves based on penetration, but more so on the outstanding balances as a ratio of total assets. Take the total outstanding balances (preferably by each card program) and divide this number into the total credit lines outstanding. What is the ratio? A ratio of 30% or higher, should trigger consideration of whether a card program needs a credit line increase for cardholders who qualify. When was the last time your members received a line increase without asking for it? However, a ratio below 25% may indicate that your credit union card remains underused and does hold the top-of-the-wallet slot. Credit line increase reviews should be conducted at a minimum of once per year. Three core sources feed credit card program income: Finance Charge, Interchange and Fee Income. In light of the recent news about interchange legal issues, and the constant barrage of teaser rates and balance hoppers, a credit union program should be sustaining the following ratios for optimum profitability: Finance Charge Income: 70%, Interchange Income: 15% and Fee Income 15%. Fee Income should be limited to late fee, overlimit fee, return check fee and in some cases, annual or usage fees. This one performance check will provide an indicator as to whether the cardholder balances or cardholder usage require a boost. If the fee income is below 15%, this indicates an opportunity to review fee structures and parameters to ensure maximum but fair income, is being attained. Calculate the active account ratio by dividing the active accounts into the total accounts on file. This ratio should be between 65%-70%. However, don’t be misled. Is your processor providing a clear number of active accounts? Are there accounts with balances, generating finance charge income, but blocked due to delinquency or overlimit? Or do these “active” accounts simply have an “open” status, yet have not been used by the cardholder in six months? Most processors provide one inactive number on the monthly management reports, but it is up to the credit union to decipher and segregate those accounts. Do you want to be paying for accounts that are not generating income for your credit union? Do you really have a good idea how many accounts are being used regularly by the cardholder versus those that cannot be used due to a blocked or dormant status? Divide the inactive accounts into the total accounts on file to get the inactive accounts ratio. Inactive accounts as reported by processors most often include dormant accounts, closed accounts, bankrupt accounts, and so on. You can expect a true inactive account ratio to be in the 15% range during any given month. As with the active account category, this requires some research on the part of the credit union. How many of those accounts are lost? Stolen? Upgraded? Expired? Although processors perform quarterly purges with criteria established by MasterCard and Visa, they do not have the credit union’s ability to know which accounts can be removed from the system sooner than up to an 18 month wait. Most often the credit union can manually purge an account long before the myriad of criteria is me. This is the simplest check. Take a look at your credit union credit card. Is it appealing? Unique? Reflect the bond of your membership? Is this a card that you are proud to use? The look and design of a card is another important factor as evidenced by the emerging “choose your plastic” campaigns offered by the monoline issuers. Again, most processors provide a full design and production service, if you do not have the staff or expertise to design a card unique to your institution. Or have a contest among staff and members. Obviously, these five quick check ups are just the beginning of evaluating your card program, but, by just performing the five tests above, you should have a clear indication as to whether or not your card portfolio and the growth potential should become a priority in the very near future. You may be surprised at what you discover.

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