Do your members who own small businesses use the business credit cards you issue, or are they still stuck on consumer cards?
Do you have a plan to “graduate” members from starter cards to traditional products?
Have you re-evaluated members’ credit limits on your cards within the past year?
If you answered no to any of those questions, you’re compromising the profitability of your credit card portfolio, PSCU’s Bradley Wylie says.
In an overview of many aspects of card programs at a CUNA Lending Council Conference breakout session, Wylie offered several quick-hit tips that credit unions can implement:
►Maximize business card use. This product offers a better return than consumer cards because of higher interchange fees, with a yield of 3.92% on a $3,000 balance compared with roughly 3% for basic rewards cards.
The credit union faces no additional risk, and the CARD Act doesn’t cover business cards, so you maintain flexibility on pricing. Members won’t notice a difference on their end, so long as your business card offers the same rewards.
Yet many small-business owners have stuck with consumer cards out of habit—or in many cases, because they embarked on a second career. Find these members and advise and incentivize them to switch.
►Graduate starter card users. Despite the strong market for this product, especially among consumers with no, little, or bad credit, Wylie cautions that credit unions should cap issuance of starter cards at 10% of new account volumes because the product loses money.
On an account with a $1,700 credit line and a $600 balance, he cites a return on assets of minus-4.91%, compared with 4.3% to 4.4% for standard cards in a mature product line.
“Unless you’re charging an annual fee, you cannot make money on it,” Wylie says. “The balance isn’t high enough at the rates you can charge or want to charge to cover operating expenses.”
It’s equally crucial to employ a “graduation” strategy for these cardholders, with a defined date for shepherding them into standard credit cards or other lending products, according to Wylie, who recommends exploring the Discover card’s site as a guide.
“That still gives you a place to help members but ensures you don’t get hurt,” Wylie says.
Branch staff like starter cards because heavy consumer demand helps them hit incentive goals, he notes.
►Card product tips. Wylie touched on several other aspects of credit card portfolio management, such as: