Issuing credit cards to college students offers a lucrative market opportunity for credit unions—assuming, of course, they follow the letter of the law.
While CARD Act regulations certainly had an impact on the way credit card marketers could engage with students, credit unions have long followed a philosophy of people helping people, and this obviously extends to the younger generations.
As such, they do well to serve this growing and important market with a much-needed financial product.
In the spring of 2012, a Student Monitor Financial Services survey found that 27% of college students had a credit card in their own name, and that 62% had applied for their first credit card before starting college.
During that same year, Sallie Mae's “How America Pays for College” report revealed the percentage of students with credit cards increased from 21% during freshman year to 60% in the senior year.
Entering this marketing niche can be a strategic move for credit unions looking to lay the foundation for a lifelong member relationship. But that is not to say providing a credit card product to this sometimes fickle and always on-the-go consumer group is not without challenges.
The U.S. Department of Education's National Center for Education Statistics found that 35 of the nation's top 50 credit card issuers are competing in the college market, offering an average credit limit of more than $6,000. So competition is steep.
What’s more, students generally have little to no credit history, so student credit cards are often issued with somewhat lower credit lines and relatively higher interest rates. The benefit to the student is that the card opens the doorway to building a credit relationship.
The challenge for credit union card marketers lies in converting these students to long-term loyal members. If the initial requirements to obtain a credit card are too stringent, students are more likely to turn to another institution or add a competing credit card as they build a stronger credit history.
To help staunch this outward flow of business, credit card marketers must be able to precisely pinpoint the time when students become most attracted to their competitors.
IQR, a data analytics company in Santa Rosa, Calif., took on the task of helping its client, a U.S. issuer of student credit cards, do exactly that. The issuer hoped to learn more about why and when students were losing their initial loyalty and leaving for a competitor’s credit card product. The goal was to help the institution maintain a relationship with this critical segment of its customer base.
IQR’s data analysts identified students who had established a relationship with one of the issuer’s competitors. Their study found that cardholders with 13 to 16 months on the books were most likely to seek additional opportunities because they believed that their year of having a credit history would be appealing to other lenders.
Those who managed to attain a higher FICO score were also most likely to switch to other products with lower annual percentage rates, higher credit lines, or some type of reward/rebate program.
Even more problematic was the finding that more than 40% of the student cardholders carried multiple cards, further fragmenting the cardholder relationship and minimizing the potential for lifetime revenue.
Losses from the pool of more 40,000 “picked off” accounts IQR studied amounted to an astonishing $1.2 million annually.
For credit unions coveting the relationship potential of today's college students, the lessons of this study should not be ignored. The results must be integrated into both better marketing and stronger retention strategies for this critical group of potential life-long members.
Credit unions can begin by building a strong relationship with students from the moment the credit card is issued. Because of their nature as member-oriented institutions, credit unions can provide students with regular educational information about credit, student loans, and financial topics to help them better understand the choices they will have to make in life.
Marketing strategies will need to take into account the more digital and connected nature of today's college student. Websites must be optimized to attract attention, provide information, and be easily viewable on a range of mobile devices—think tablets and even wearables like Google Glass and smart watches.
Communication capabilities through blogs, Facebook, Twitter, and other social media outlets, too, have to be increased to offer responsiveness and connection.
As the crucial one-year anniversary of a student cardholder’s relationship nears, the credit union must be first to reassess the student's credit worthiness and consider altering the credit terms. Congratulate students who have been responsible and offer them a tangible reward for their actions to remind them of the benefits of remaining a loyal member cardholder.
They may only be students with a credit card now, but these up-and-comers will soon go on to become significant wage earners. Credit unions that retain these students as members throughout the college years will be more likely to benefit from a lifetime of business.