Despite the negative headlines about the economy, there really is no better time for credit unions to offer credit cards than today. While the economy squeezes lending products such as mortgages, home equity lines of credit and auto loans, credit card usage is trending upward as electronic payments resonate with consumers as the primary payment vehicle. Electronic payments, which include debit and credit cards, equaled 41% of payment transactions in 2006. By 2011 consumer electronic payments will rise to 51%, eclipsing cash and checks.
Payments cards, with more than a billion transactions each week and growing, have become an invaluable touchpoint between the cardholder and issuer. If your credit union's card program isn't a primary product offering, now is the time to turn your attention to it. Your card is not only a convenience for your members but also a miniature traveling billboard that reinforces your brand with your members each time it is used. No other credit union product or service offers the same level of brand exposure.
Many positive trends indicate that credit union card portfolios are poised for growth, even in the face of today's credit crunch. According to Callahan's, credit union card balances are outgrowing those of banks and thrifts (14.5% to 12.5%), which means interchange revenue and interest income are also increasing. As balances have grown, credit union delinquencies and charge-offs remain below industry averages reflecting credit unions' historically sound lending practices.
The return on assets for credit union credit cards is now higher than that of banks and thrifts for the first time in more than 19 years. Credit cards are also the highest yielding asset in a credit union portfolio, generating up to 10% product yield, or 1.85% of ROA, more than double the 0.70% ROA for mortgage loans and almost six times the 0.32% ROA for auto loans.
Regulatory and legislative issues being debated on Capitol Hill are also playing in favor of credit unions and their member-friendly card practices. Resolution 5244, the Credit Cardholders' Bill of Rights Act, proposes consumer-friendly changes, such as the elimination of universal default. In light of this legislation and negative publicity about predatory lending practices, the credit union industry has received a significant amount of positive media attention. News stories have highlighted the industry's member-friendly card terms, lower interest rates and superior fee structure. This exposure helps drive awareness of the credit union philosophy, which can only aid credit unions in increasing card penetration among members.
If your card portfolio is underperforming, now is the time to evaluate it and assess what you can do to leverage its true potential. A strategic growth plan to optimize your program along with a processing platform that empowers you to compete is critical today. You need the flexibility to offer multiple interest rates based on member risk and robust rewards to drive usage and develop loyalty. Your processing partner should offer tools and service to help you manage the program and the expertise to implement strategic marketing to ensure the program is delivering results. Whether you own your portfolio or have previously sold it, a good partner should work with you to implement the things you need to do to make your portfolio profitable. It's a dynamic and promising payments market out there, and you don't want to miss out on its growth potential.
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