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The credit card business is a very smart business for credit unions. It meets the cardholders’ need for a payments card, it provides unsecured debt and the business is usually quite profitable. However, now more than any other time in history, smaller issuers are suffering credit card attrition.

What is Attrition? Attrition can simply be defined as a reduction in active accounts or balances. Attrition can occur in several ways, but it is almost always invisible to you. Your member may continue using your card for purchases but transfer their balances to a lower rate card. Your member may keep a balance on your card but start using a competitor’s credit card for their purchases. Your member may replace your credit card with a debit card or your member may contact you to cancel their account outright. Why does this happen? What causes it? There are several reasons, some of them are obvious and some are not. By the end of 2006, the top 10 credit card issuers owned 88% of all credit card balances, while the remaining 6,000 credit unions and banks owned only 12%. Last year, the large credit card issuers mailed seven to eight billion credit card solicitations Your best members were offered rich card rewards, including air miles, free gasoline, cash back, college investment programs and more, in addition to 12 to 18 months of 0% introductory rates. Most credit unions offer much lower credit lines than the larger competitors because they are more conservative credit underwriters. However, most consumers have multiple credit cards and they use the one with the highest credit limit because they do not want to be declined. They are much more comfortable using the big bank credit card with a $16,000 limit than yours with a $4,000 credit limit. Reward cards are a very small part of credit union card portfolios, but they are becoming increasingly important Visa’s Findings oConsumer rewards cards in 2005 accounted for 77% of total dollars spent and 80% of all transactions, according to the Visa payment panel in a study released at the end of July 2006. oThis compares to 40% of total dollars spent and 43% of all transactions in 2001. oAs of 2005, about 50% of all credit cards had a rewards program compared to 21% in 2001. The big bank competitors also offer a much broader product set including student cards, high net worth cards, business cards and secured cards. When you consider the fact that generating new credit card accounts may cost six times as much as the cost of retaining existing accounts, the importance of reducing attrition becomes very clear. The following chart shows the impact of relatively small changes in attrition and activity on your credit card portfolio. Solution: How Can You Defend Against the Forces of Attrition? Taking the following key actions will help you retain your members’ accounts and balances, and thus significantly reduce attrition: oReinvigorate Your Product Set: Many credit unions have not changed their product set in years. It is a fairly simple thing to introduce a platinum card. If you currently have only gold cards and classic cards, convert all your gold cards to platinum. It will cost you very little, but your members will appreciate it. oReview Your Credit Line Assignments: Remember that one feature/factor that a member considers when utilizing a card is their credit line. Most large issuers use 10% of income as a guide to establishing credit limits. You can do better than this with a review of the credit bureau report and the specific knowledge you have about your cardholder. If they have proven to you that they can support a higher line because of their overall performance with you, grant them the line they deserve. This will allow your members to keep the balances on your credit card instead of the competitors. Chances are you will also improve loyalty as well. You should consider implementing ongoing credit line increase programs. Utilize the tools from your credit bureau, factor in time on the books and payment history with your card program to create an automated line increase strategy.

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