The April 30 impact session “Stats – Not Just for Baseball. Credit Card Portfolio Management: Knowing What’s Important” provided many answers for credit unions on how to expand their credit card programs and customer base.
The session was hosted by Jennifer Kerry, Vice President, Credit Issuer Processing, CO-OP Financial Services. Discussion participants included Ondine Irving (Owner, Card Analysis Solutions), Tim Kolk (Owner, TRK Advisors, LLC) and Brian Scott (Vice President, Sales, The Members Group). The topic: managing a credit card portfolio.
Ondine Irving: Internally, not many credit unions are managing their credit card program. Externally, not many credit unions are pushing their credit cards.
Tim Kolk: Credit unions need to develop more sophisticated metrics for their risk management, including more rigorous procedures and benchmarks. Risk scores can give you information about relative risk. Credit unions need to track additional signals: how people use their cards, changes in direct deposits and payoff amounts.
Brian Scott: Credit unions don’t take enough risks. The FICO score shouldn’t be your only risk indicator, you need to dig deeper. Someone will issue the consumer a credit card, your job is to manage your own risk while taking risks.
Goals and Benchmarks
Brian Scott: When somebody is opening an account, there’s no better opportunity to offer a credit card. Your goal should be 35 percent of your checking account customers owning a credit card. The second hurdle is to get members to use their credit on a continuous basis.
Ondine Irving: When you establish goals, you need to base them on the percentage of your total loans. Up to 25 percent of your loans should be in unsecured loans. Credit cards should be 10-15 percent of your overall loans.
How to Manage Your Credit Card Portfolio
Ondine Irving: There are no influential champions for credit card programs in credit unions. Successful management of credit card portfolios is done top down, preferably led by the executive team.
Tim Kolk: Agreeing with Ondine Irving, Kolk described credit card portfolio management as a legacy program and purely operational. He recommended credit unions run these programs by people skilled in analytics and project management with a direct line to the executive team. Ondine added that the right people have to be passionate about credit cards.
What is a Good Credit Card Pre-Approval Response Rate?
Tim Kolk: In the end, it comes down to the cost for a net-converted account, not the response rate. The financial industry has a response rate of 0.40-0.50 percent, credit unions in general have a higher response of around 1 percent.
What About Members With Low FICO Scores?
Ondine Irving: You need to look beyond the credit score: employment history, payment history, etc. A total of 70 percent of your income should come from finance charges to run a profitable credit card program. While you want to offer secured card programs, you can’t rely on them since these cards are not very profitable. Credit unions have to find ways to move members from secured to unsecured cards.
How Should Credit Unions React to Aggressive Rewards Programs by Banks?
Brian Scott: Rewards and offers don’t have to be exorbitant to get new customers. Aggressive rewards are best to get completely new customers; the opportunity for credit unions lies in getting current customers to add credit cards to their credit union portfolio.
Ondine Irving: One of the best opportunities to develop stronger relationships with members is to offer rewards across all products and services. As an example, a credit union offered auto loans tied to 25,000 credit card points, allowing members to take a flight anywhere in the United States, once the auto loan was approved.
What are Other Ways of Driving Up Credit Card Usage?
Credit unions can combat the zero percent balance transfer offered by banks through financial education, communicating the hidden fees. Credit card offerings should be more visible; give members the opportunity to be educated and compare bank and credit union products.
When people change their credit card usage, systems should be in place to discover those changes. These are the moments where you need to intercept members and reward to increase their usage again.