Credit Cards Rising

CUs are bucking the trend and growing their card portfolios while other lenders are seeing a downturn.

June 27, 2013

If you haven’t taken a long, hard look at your credit card portfolio lately, now’s the time. Are you giving your card program the attention it needs to succeed? What changes could you initiate to reap more benefits for your credit union and members? Are you analyzing for opportunity?

Credit unions that ask those kinds of questions “are realizing they have a hidden gem here, and that maybe they should capitalize on it,” says Chris Joy, director of credit consulting for Advisors Plus, an affiliate of PSCU.

In Joy’s experience, the major hurdle to getting the most out of a credit card program is inertia. Credit unions tend to manage the daily operations of their credit card business, he says, but they don’t do so strategically.

Too often, he says, “they set up programs and then put them on autopilot.”

But Joy cites some developments that are prompting credit unions to be more proactive. For one, economic indicators are improving in general. Plus, credit unions are flush with deposits and need to lend.

A strong credit card program is one way to spur loan growth. “I think the next 18 months will be a great time for credit unions to grow their credit card portfolios,” Joy says.

The rewards race

The first step in sizing up your credit card prospects is to “take a hard look at your product set, especially your rewards,” Joy advises.

He says many credit unions haven’t revisited their product lines since the 1990s, but the credit card business is a fast-moving, highly competitive market that has seen an “explosion of rewards concepts from the major issuers.”

Many credit unions still offer rewards of one point per sales dollar. While that was standard practice a few years ago, offers of 1.25 or 1.5 points per dollar are now luring consumers.

To compete against the big issuers, “the first step is to construct your product set,” Joy says. “Next, you have to sell it to your members and show them the advantages. Credit unions can go toe to toe with just about any product the big banks can issue in the credit card arena.”

The right rewards or loyalty program is key, agrees Nancy White, Fiserv’s vice president and senior business leader for credit solutions. “Loyalty programs definitely drive the transactors [cardholders who pay off their balances in full each month] and transactions generate revenue for the credit union.”

Designing your credit card and reward offerings requires targeting member segments, White says. She lists three key groups that present the biggest opportunities: young adults, business members, and highincome members.

“Your approach to these member segments,” she says, “depends on your membership base and credit card strategy.”

Many credit unions, she explains, want to attract younger members, and the right credit card product can help. Just be sure your promotions offer something they value.

A balance transfer or a convenience check promotion, for example, has no appeal to a young adult who has no other credit card and never uses checks.

“Instead, offer a credit card tailored to that younger audience, such as a credit-builder product,” White advises. Or you might offer student cards. You’ll miss an opportunity if you’re not focused on finding innovative products” that fit certain member segments.

NEXT: Affinity groups

Affinity groups

Serving a specific member segment is the point of the Harvard Alumni Card, launched last September by $427 million asset Harvard University Employees Credit Union, Cambridge, Mass. The credit union won the bid to take over this card portfolio when the Harvard Alumni Association’s contract with another card issuer expired.

“This affinity program is a great fit in terms of our mission,” says Cynthia Dacosta, credit card portfolio manager. “A percentage of the proceeds go to a scholarship fund, so it’s a win-win for us and the alumni association.”

Designing the right rewards program was an essential part of encouraging card use and building a successful program, Dacosta says. Cardholders earn points for travel, merchandise, or cash back. To meet alumni’s travel needs, the travel rewards have no blackout dates or other restrictions.

Plus, alumni can select rewards that are Harvardspecific, including a specially designed Harvard chair and gift cards to The Coop, the cooperative campus bookstore.

Another key to success was designating one staff person to oversee the affinity card program.

“I’m responsible for making sure the program is successful,” Dacosta says. “I analyze all the data to make sure the cards are getting in cardholders’ hands and to make sure they’re using those cards. You need someone dedicated to making that happen.”

Harvard University Employees has marketed the affinity card through three email campaigns to 180,000 alumni so far. The program has its own website——and the credit union created an “exclusive premium card welcome kit” to promote the card’s benefits.

Although the credit union targeted its affinity card to a special, large group, Dacosta believes a credit union with entirely different member demographics could make this type of program work.

“Look at your field of membership and figure out where your potential lies,” she says.

Setting goals

So you’re reaching out to targeted member segments and you’ve designed your rewards program to give members what they truly want.

Another crucial strategy is to examine your credit lines, says Jennifer Kerry, vice president of credit issuer processing at CO-OP Financial Services.

When consumers use half of their available credit card lines, she says, they typically stop adding new charges. Given that tendency, it’s important to make sure your credit lines are high enough to support the promotions you’re offering members.

If you run a balance-transfer promotion, for instance, “be sure your members have the credit line availability to actually take advantage of the offer,” Kerry says. “If they don’t, you’re wasting your marketing resources.”

Also, be ready to adjust those credit lines from time to time—at least quarterly; monthly if possible. This requires continuous monitoring of members’ credit scores, she says.

Kerry also believes credit unions should consider expanding their credit card offerings to serve members with diverse levels of creditworthiness.

That might entail “changing your risk model a bit,” she says, “so you have an appropriate product for members of all credit grades, down into the 500s. You could create a credit line structure that lets you penetrate deeper into your membership base.”

Whatever decisions you make on whom to target and at what levels to set your credit lines, you’ll need to define goals for your credit card program and then track results. Typically, the goal is to have your credit union’s card owned and used by a certain percentage of members, Kerry says.

But she recommends a different goal: Total card balances should account for 10% to 15% of all consumer loan balances.

At year-end 2012, credit card loan balances accounted for only 6.5% of credit union loan balances, CUNA reports, indicating room for growth.

NEXT: Dive in

Dive in

One challenge credit card managers face is a lack of marketing resources and some misconceptions, Kerry says. For instance, she has heard about marketing people who vetoed rewards programs because they thought the programs were inherently unprofitable.

Such situations illustrate the need for close collaboration between the marketing department and the product managers actually running the credit card program.

“Let product managers decide the types, timing, and targets for credit card promotions,” Kerry says, “based on their market knowledge.”


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Marketing has been a vital part of Community Financial Credit Union’s credit card success. The $145 million asset credit union began issuing credit cards in March 2011 and initially relied on cross-selling to market them.

In 2013, full-fledged marketing promotions kicked in. The goal is to grow the credit card portfolio by about 15% this year, says Jeremy Pinard, chief lending officer for the Broomfield, Colo., credit union.

The promotions convey the benefits of Community Financial’s Platinum Rewards MasterCard. “We have one of the best rewards programs out there,” Pinard says. “It competes with the top-name brands.”

Rewards vary depending on the number of relationships the member has with the credit union. Among three relationship-based groups, rewards range from one to two points per dollar spent. The points can be redeemed for travel, merchandise, gift cards, downloads, or charitable donations.

Initially, the credit union didn’t offer a cash-back option due to the cost. Members tend to redeem cashback points immediately, Pinard explains, while they’ll let points for travel and merchandise accumulate over time.

But members wanted the cash-back option, so the credit union added it.

“We decided to do something unique,” Pinard says, “by giving a statement credit each year from November through January. That lets us compete with the cash-back programs.”

As Pinard sees it, Community Financial’s credit card is one of the most valuable products it offers to members.

A successful program, he adds, requires committing time and resources to it.

“If you have a credit card program,” Pinard says, “then have a credit card program. Don’t just stick your toe in the water. You have to go all in.”