>> credit cards
The Most Profitable
Product for CUs
‘Yes, Virginia, We Do Have Credit Cards’
Stop treating your credit card program as a redheaded stepchild
organizational structure and program visibility.
By Ondine Irving
I
f you haven’t heard by now, credit cards are the most
profitable product a credit union can offer. In 2010,
when credit unions had a prime opportunity to capitalize on the games banks were playing with their cardholders to counteract the effect of the CARD Act, credit
union card loan portfolios grew just 2 percent, according to
NCUA data. Two percent! This follows a five-year trend in which
credit card loan growth averaged 11 to 13 percent annually. What happened out there? Gun-shy, conservative lending
and pesky regulators seemed to get the better of credit unions.
The fact that less than 3 out of 10 credit union members carry
a credit union credit card is actually quite pathetic. Check with
your management and board members–chances are they are
using the competitions credit card.
Yes, credit cards remain the riskiest product a credit union
can offer due to the unsecured nature, yet if the intricacies of
credit card portfolio management are fully understood, the card
portfolio can be a tremendous boost to a credit unions bottom
line. If a credit card portfolio is to reach 10 to 15 percent of
your total loan portfolio, as mentioned in last month’s article,
and maximize overall credit union earnings, it certainly deserves
the respect to be a priority within the credit union and managed
effectively.
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Organizational Structure
I am continually astounded at the number of credit unions that
don’t give credit cards the attention they require within their
own organization. Credit card programs do not run themselves,
unlike most other credit union loan products.
Who owns the responsibility for credit cards at your credit
union? It is often spread among numerous departments¬–lending, marketing, operations, accounting and member service.
Herein lies the problem; a blatant lack of accountability, ownership and strategic planning for the credit card program often
results in a mediocre low performing credit card portfolio.
It is for this reason alone, the No. 1 investment a credit
union can make for its credit card portfolio is in a credit card
product champion. Someone whose key responsibility is to
ensure the credit unions goals are met, the daily operational
duties are managed, analyses are complete, invoices reviewed,
marketing tactics are relative and pertinent to your unique card
portfolio performance and vendor management. All the puzzle
pieces need to fit together and one person needs to be the gatekeeper.
This “champion” should not be a coordinator or a processor position. The old adage, “You get what you pay for” applies
here. Due to the profitable nature of the credit card program,
the position deserves more respect. If you choose to assign the
credit card function as a lower-level position, you will likely
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>> credit cards
miss many opportunities for the magic to happen with your
credit card program. On the other hand, the position should not
be a vice president level either, unless your credit union is of
significant asset size with a large credit card program.
For the average size credit union, the “credit card champion” should be a supervisory or managerial level. This function
is a jack-of-all-trades position and recommendations include a
strong background in operations, analytical ability, marketing
savvy and the ability to manage and interact effectively with your
credit card processor and internal management staff (if your
credit union is on the smaller side, consider combining debit,
ACH, ATM and other payment functions under one umbrella.)
Headcount tends to be a current issue in todays credit
union world. But let’s break this down. Unlike other loans,
credit card income is derived from three consistent sources:
finance charge (70 percent), interchange (15 percent) and fee
income (15 percent). The expenses of running a card program
include charge-offs, credit card processing, marketing, cost of
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funds, plastic insurance expense and yes, salary expense. The
highest expenses tend to be charge offs, cost of funds and processing expenses. Overall, your credit card program should be
generating an average of $100 in annual net income per total account on file- and this would include salary expense. The truth
remains salary expense is one of the lowest expenses incurred
for a credit card program. Of course, this is all relative to the
loan size of your credit card program and your existing salary
ranges, but in my experience in reviewing more than 300 credit
union card programs, salary expense typically falls in the lower
percentile of total expenses.
I won’t sugar coat. There are many moving pieces in operating a credit card program. But your members deserve a good
competitive product, and it is your responsibility to provide value driven products. Beyond the strategic planning, performance
and profitability analysis, marketing of the card program, there
are daily tasks such as account opening, card replacements, lost
and stolen account maintenance, plastic stock inventory, charge
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>> credit cards
backs, reissues, accounting entries and member service issues
maintain the bulk of the credit card operation environment. The
easy way out would be to sell your program, but I strongly discourage any credit union from losing control of this high performing asset and it baffles me why any credit union ever did.
Just ask the credit unions that sold their programs at the height
of card portfolio sales in 2002 through 2004. They are all coming back to the card-issuing business once again.
We insiders view the credit card product as a lending product and often by default credit cards typically report to lending.
Not to upset the applecart within your organization, but the reality remains the credit card product is an operational product and functions in the same manner as a debit card tied to a
checking account. Beyond the lending function during the initial
underwriting and the annual credit qualification reviews for line
increases and reissues, lending is only one piece of the puzzle.
Credit cards, as a function, should report to the operations area
of your credit union.
Internal Visibility: CEO Involvement
Another key observation I have gleaned throughout the years
is that the most successful credit union credit card programs
in terms of growth and total loan ratio are those whose CEO is
actively involved and passionate about lending and credit cards.
These are the CEOs you see strolling around at credit card processor meetings and regular attending lending and risk management seminars, the attitudes to see the credit card program is
a tremendous opportunity to increase earnings despite the perceived risk. These are the CEOs that realize that granting higher
credit lines to qualified members while motivating the staff to
push the credit card product will gain substantial results.
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Credit Union BUSINESS
In the mid 1990s, I had the privilege of running a 50,000-account, $72-million credit card portfolio at a credit union that
had 65 percent card penetration to members. The key was our
CEO who believed in lending, believed in taking risks and believed in paying employee incentives. We were always excited
about credit cards! Below are some of the tactics we used to
raise the internal awareness to the staff that yes, credit cards are
important to the credit union:
• Have the card product champion report directly to the
CEO- if not permanently, at least for a short time- try it for
six months.
• Do you utilize employee incentives at your credit
union? Utilize employee incentives on balances brought in–
not new accounts. A new account will cost money from the
get-go, while balances brought in will start earning income
immediately. Set up a tiered structure to incentivize the employees from $10 to $1,000 transfer up to $35 for a $5,000
transfer. Gun shy? Try it for 30 days and see what happens.
• When underwriters are reviewing loan applications,
the members credit report can be a gold mine for identifying any competitor credit cards. These may include retail
store cards or gas cards in which the rates typically exceed
21 percent, no matter the members credit score- or could
be a major bank card which is laden with high rates and
fees. You know your rates and fees beat this, so why not
help improve the members overall debt situation? This is
the ideal time for instantly approving and completing a
balance transfer on the spot for the member. Delight your
members!
External Visibility: Your Website Credit Card
Page
One would think the most profitable product for a credit union
would be at the forefront of a credit unions website–perhaps on
the home page or a clearly marked tab just for credit cards on
the home page. Unfortunately, this is not the case for most credit
unions. When we look at the competition–the big banks–they
have dedicated websites just for the credit card. Credit unions
should be no different.
Take a look at your website. Where are credit cards? Likely
not as easily identified from the home page as you may think.
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>> credit cards
In my research, more often than not, the credit card product is
hidden under loan tabs, product tabs or sometimes so deeply
embedded in the website, I completely give up looking for it.
Some credit unions actually instruct members to call for information or rates pertaining to the credit card. Really?
Within your credit unions credit card page should be the
card description, rates, fees, enhancements, terms and conditions, Schumer box, links to the members credit card account
detail, picture of your plastic or link to photo cards, and most
importantly the credit card application. To have the member
leave the credit card page to seek out rates on the rate page or
fees on the fee page or the application on the application page,
will more than likely frustrate the member seeking a credit card.
Make it simple, make it easy and make it visible.
Start increasing the visibility of your credit card program–
both internally and externally!
Next month we will discuss program structures and offerings and ensuring your program is competitive while remaining
profitable.
Ondine Irving is the owner of Card Analysis Solutions and
CreditCardConnection.org.
CUAUTOCOUPON Adds Four
Credit Unions to Network
cuautocoupon Inc. (www.cuautocoupon.com), based in
Hauppauge, N.Y., announced the signing of four New York metropolitan credit unions to its network.
The four signees include Nassau Educators Federal Credit
Union (NEFCU) in Westbury, N.Y., Nassau Financial, also Westbury-based Winthrop-University Hospital Employees FCU in
Mineola, N.Y. and Island FCU in Hauppauge, N.Y. (www.islandfcu.org).
Each participating credit union’s website will have a banner
linking it to the cuautocoupon web page where members can
retrieve their coupon. Here, the shopper can also apply for a
pre-approved auto loan with their credit union, as well as find
a local participating dealership or national auto service where
these coupons can be redeemed.
“We are thrilled,” said President Robert O’Hara. “This is
a great way for us to establish not only a regional, but national
footprint. These credit unions believe that our product will benefit their members as well as attract new ones all while increasing their auto loan balance sheet. It’s a ‘win-win’!”
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cuautocoupon also provides credit unions with auto loan
refinance leads from their members who financed their vehicle
purchase with an outside lending institution. As an added benefit to the program, members can save by redeeming a coupon
at any local participating dealership to receive 10 percent off
their next service, parts or accessories purchase.
cuautocoupon is a coupon program that was set into motion in November to help drive more business to credit unions
and auto dealerships. The program provides discounts to credit
union members when purchasing a new or pre-owned vehicle
while supplying the credit union with real-time leads of members in the market to purchase a vehicle. Additional information
may be found at www.cuautocoupon.com/cuac.
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