Credit Cards Are Still Industry’s Rodney Dangerfield
Credit cards continue to be among the most productive but little appreciated credit union assets, according to executives whose job it is to help credit union learn to manage their card portfolios more profitably.
The executives, card portfolio analysts working for Card Services for Credit Unions, said that, on average, only 15% of a credit union’s members carry a credit union’s credit card, leaving most credit unions with plenty of room to grow their programs.
“Return on assets, fee income, interest income and overall profitability are all higher for credit unions that have a credit card program, compared to those that do not,” said Bill Lehman, vice president of portfolio consulting services for CSCU. “Credit cards are a very effective way to improve the loan/share ratio.”
CSCU is an association of credit unions which process payments with FIS.
Lehman’s remarks appeared in a research paper the association released, “A Credit Card Program Can Be a Credit Union’s Highest-Earning Asset,” in which Lehman laid out how much a strong card program can benefit a credit union.
For example, a 40,000-member credit union might have 3,600 credit card accounts (9% penetration) with 1,980 of those accounts active (55% activation) with an average balance of $1,500 and 5.5 transactions per month. A portfolio with these performance attributes could generate in excess of $400,000 in annual revenue (finance charges, interchange and fees), he observed. If the credit union increased penetration to 13.5%, average balances to $2,000, activation to 60% and utilization to seven transactions a month, this same card portfolio could generate an additional $330,000 additional in total revenue for the credit union, he argued.
If this is so, why aren’t more credit unions improving their card programs?
The paper offers several reasons, among them the fact that some credit unions have board cultures that are not comfortable promoting card programs or usage.
“Some credit unions have difficulty getting upper management to buy into a credit card program,” said Michael R. Chenderlin, a senior portfolio consultant for CSCU. “Often this is because there isn’t a full understanding of the benefits of credit cards and how they help create a stronger offering across all products to deepen relationships and drive profitability.”
Ed Jesionowski, another CSCU senior portfolio consultant, cited two credit unions that are relatively close in size and location but which have seen sharply different card performance results after one made a relatively small change to its card management protocols.
“Two of my credit union clients are in the same city, five miles apart,” he recounted. “One instantly issues a credit card and debit card when an account is opened. Members can imprint the cards with photos of their kids or the family dog. This credit union has a 51% penetration rate. The second credit union has a totally different mindset and doesn’t take full advantage of what their program can offer. Here the result is a penetration rate of 8%.”
None of this is particularly new. Credit unions have always been slow to properly value their credit card portfolios, Lehman maintained, but the issue has become more pressing in the wake of the Great Recession.
Essentially, credit unions need to better manage their card portfolios to both improve their own bottom lines and defend their membership base from competitive predation from large banks that have either chased away or angered many of their best customers, card experts said. Consumers are looking for credit card programs with reasonable interest rates and solid rewards program, Lehman argued, and if they don’t get them from their credit union they will be open to getting them from a bank.
“Banks have unloaded their nonprofitable customers and are now trying to bolster their portfolios by going after the most profitable credit union members,” wrote Lehman. “Most of our credit card holders are between A+ and B+ paper. They are perfect targets for banks. Banks are trying very hard to acquire upscale members with good income levels and good credit history.”
And many of the card management changes are not very expensive to do at all, the executives contended. For example, does your credit union’s website merely list a Visa or MasterCard as one among the possibly many loans available?
“If you look on some credit union websites, you might see their credit cards on a list under the loan programs,” said CSCU senior consultant Barney Moore. “Those credit unions have a great opportunity to promote their credit card programs much more prominently. Citi Chase, Bank of America, and other large issuers leverage their online presence and create attractive and dynamic promotion of their credit cards on their websites—it’s not just a bullet point. Credit unions should use a similar approach to make their credit cards stand out and to promote the value, simplicity, fairness, and transparency of their offerings through every marketing channel.”
Credit union’s have still not penetrated their membership base very deeply with their card programs, Lehman noted.