ARLINGTON, Va. — Both credit unions and community banks are poised to see strong credit card marketing opportunities as the country continues to move through its ongoing economic crisis, according to credit union and bank experts.
A variety of experts agreed that the availability of funds and strong reputations with their local communities positioned both credit unions and banks to aggressively market their plastic programs through the crisis.
They split a bit, however, on the extent to which the current banking crisis might act to diminish the card marketing of some of the biggest banks–which have been the traditional card competitors for credit unions.
"One thing both credit unions and community banks have going for them now is that they really haven't been part of this whole mess," said David John, a senior research fellow with the conservative Heritage Foundation in Washington. "They didn't buy the sorts of exotic financial instruments which have proved so difficult to market, so they haven't experienced those losses. They largely have money to lend."
But John, who has experience with both banks and credit unions, added that neither community banks nor credit unions are completely sheltered from the impact of a bad economy and that neither should abandon their sound lending principles.
"Whenever there is a downturn in the real economy–not just the financial services economy–that is going to have an impact on financial institutions. Both credit unions and banks need to walk that fine line between doing what they can to meet their member and customer credit needs while still remaining a prudent lender," he said.
John and Aite Group Analyst Adil Moussa each used the fictional example of the savings and loan featured in the film "Its a Wonderful Life" to highlight what they recognized as the strongest suits of both credit unions and community banks: their links to their communities and to their customers and members.
"Both of these are high-touch, high-confidence institutions," Moussa explained. "Like in the movie, they are places where the banker knows who the borrowers are and why they need their loans and how likely they are to pay them back."
Moussa and John said this community reputation and outlook should also help both banks and credit unions benefit as not only safe places to deposit your money, but safe lenders as well.
"There is a little bit of the phenomenon of a flight to safety in lending going on," Moussa said, using a term usually reserved for discussions of deposit safety, "particularly as larger banks have cut credit lines and closed down home equity lines of credit. Credit unions and community banks should find an opening there."
But are the card-only banks and other big direct-mail issuers that have generally been among the biggest card competitors for credit unions out of the market?
Glenn Schechter, director of card services for PSCU Financial Services, said yes and no.
On the one hand, Schechter said, the persistently low returns on direct-mail card marketing had been discouraging these lenders for some time, so that the current financial crisis may simply further a trend away from this sort of card marketing, he speculated.
On the other hand, Schechter didn't expect these large card issuers to simply go away and that there would still be competition for the borrowers with the best credit ratings.
One of the key unknown factors that can only unroll over time is how effective the new tremendously larger banks, like Bank of America or Wells Fargo or Citigroup, are going to be in marketing cards through their now broadly expanded branch structure.
Schechter pointed out that it will take time to integrate the bank operations that flow from these huge, forced mergers and details like card marketing may be one item that needs to be worked out.
He noted that PSCU member credit unions had been very interested lately in trying to figure out how to tweak their card portfolios to better identify members who need more credit and could use more and where to rein in accounts where members might be overextended.
"The vast majority of their members are going to be all right just where they are," Schechter said, "but member credit unions don't want to miss any opportunities or not be aware of problems which might loom."
Karen Fry, vice president at Card Services for Credit Unions, said that their members are staying the course in their marketing–at least for now.
"They are keeping a close eye on the portfolio, but current strategies remain the same and they are continuing to develop initiatives to increase originations and usage," Fry wrote in an e-mail from a CSCU conference.
She also reported that analysis she had seen showed credit unions in general doing much better than the banks during these "troublesome economic events."
Credit union loan originations and mortgage volume are both up from 2007 and credit union return on assets is exceeding FDIC-insured institutions, she noted.
"Most agree that now is the time for credit unions to reinforce their positions as a trusted local financial institution in the community. Messages that educate members that credit unions only serve their membership, not stockholders so they are stable and reliable are becoming more visible. It is important to reassure members that their money is safe and that the credit union has money available to loan," she added.
–dmorrison@cutimes.com
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