Credit cards are the “gift that keeps on giving.”
Our credit card portfolio has seen increases of about 6% for the past few years. But this wasn’t always the case.
In fact, when I started in 2002, our portfolio was stagnant and we considered selling it.
The problem always has been this product’s complexity. Processing costs, grace periods, rates, minimum payments, and a host of other factors can dramatically affect your portfolio for better or worse.
But following these seven principles can lead to success:
1. Segment card offers. Too often I see the email, “We’ve had a credit card for years but even after adding [insert feature here], we don’t see it increasing!”
The reason? The same reason that a Ford dealer who suddenly switches to Chevrolets won’t see an increase either: The world is made up of Ford buyers and Chevy buyers.
An overly dramatic example of segmentation existed with MBNA Corp. (gobbled up by Bank of America in 2006). At MBNA’s peak, it had dozens if not hundreds of offerings. Travel card? Got it. Cash back? Easy peasy. Fashionista card, drizzled in pink sparkles with points toward Zappos? (They would have.)
What they had recognized—but what few credit unions do—is that consumers represent a range of groups who want different things.
2. Match the attributes to the segment, and be careful not to over-incentivize. For example, let’s say you create a super-premium card. This would either be high point-earning or cash back, coupled with some VIP services.
These are expensive services—so one needs to offset this with income-producing attributes such as annual fees or higher interest rates. Just remember that you need to balance each card offering.
3. Don’t overlook other attributes. For instance, the minimum payment percentage for credit unions is often quite high—2.5% or even higher.
Compared with too many cards from major banks that carry only a 1% minimum payment, you’re asking a member to pay 2.5 times or more than what they normally do.
While it’s true that a lower rate and a higher minimum will save members tons of money over the long term, many members struggle to make even minimum payments. Remember your segment.
4. Consider how members might perceive card attributes. For example, while having a balance transfer fee might be a money winner in the short term, that lessens people’s desire to transfer their balance from other cards.
Foreign exchange fees, too, can make your card more valuable for international travel—or too costly. Again, this is part of the balancing act.
5. Pay attention to your card’s image. Too often, institutions take the generic offerings like “random seashore that might or might not be of this earth” or “our logo—because that’s what people want to be reminded of each day.”
Going too far the other way has drawbacks, too. What if your cards are so personalized that they cause you angst when relationships break apart?
6. Choose in-house (lower cost) or external (more flexibility) processing. A good processor and/or consultant can go a long way here to help.
7. Market your cards. Many members probably don’t even know you have a credit card. Be novel. Ideas: Maybe do roving bands of really nice people.
Or take a meme from the Internet: cat playing piano using your cards. (Yes, there’s a reason I’m not in marketing.)
With complexity comes risk and reward. While credit cards may never be a huge part of your portfolio, they can provide some of the highest returns.
At the bare minimum, offer two types of cards: one for “revolvers” (low rate, no rewards) and one for “buyers” (rewards and high rate and/or fees).
JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash., and Credit Union Magazine's humor columnist. Contact him at 360-943-0740.