If You Don’t Believe In Your Credit Card Program – Do Everyone a Favor and Get Rid of It!

by: Ondine Irving, Owner, Card Analysis Solutions and CreditCardConnection.ORG

Rather bold statement coming from me, I know. And I cringe when credit unions seek to rid themselves of their credit card program. It is often an indicator the credit union has been ill advised and is not equipped, nor knowledgeable enough to operate a credit card program. Fair enough. Admit your weaknesses and move on.

So, if you don’t believe in your credit unions credit card program nor focus on it as a key product for your credit union, why should anyone else? A drab program with few benefits, an ugly card, lousy representation on your website and low, almost insulting credit lines?  Do your members even know you have a credit card program? I can hardly find the card product on most credit union websites. Do I really have to call to get rates or an application? After all, why openly promote such a risky product? Our charge offs and delinquencies will increase. And yes, they will.

I have worked with over 500 credit unions in the past nine years and nothing frustrates me more than having a credit union spend money for my services- receive all the recommendations and plans to have a great profitable card program- even solutions to reduce their processing expenses by tens of thousands of dollars- only to find a few years later, nothing has been done. Still spending way too much money, have a less than stellar program and wonder what they should do with their program. I hear the same old story- no time, no resources and just not a priority. If that’s how your card program is going prioritized, do everyone a favor and get rid of it. A card program is a time and resource commitment and will not run on autopilot. Your members deserve better and are likely going to another credit union or worse yet, a bank card.

I won’t pretend to be enthusiastic about your card program if I sense the management at your credit union is too gun shy or conservative to deal with this treacherous unsecured loan type.  After all, charge offs and delinquencies may increase and the regulators will be all over you.  I’ve got news for you- the regulators don’t know much about card programs either.

If you’re the kind of credit union that is apt to increase member late fees, interest rates or add new bank like fees to your card program because you feel you need to cover the risk, you’re completely missing the boat. And you may be thinking, “Ondine, you don’t know our program, our members or our culture”. You’re right, I don’t know these things- but what you may not know is the secret to credit card profitability is universal – finance charge, interchange income, fee income and controlled expenses. The balance of these factors is key. It’s not complicated at all- although other experts will beg to differ. Some try to complicate the heck out this product. It’s not that difficult- I promise. It is simple calculations and knowing what to offer and what to ignore and setting pricing and fees fairly and appropriately.

I won’t identify the numerous credit unions that follow the wrong leaders- but I see it all the time in my line of work. If the BIG Credit Union in your state has $30 late fees, minimum finance charges and penalty pricing to manage their risk, they MUST know what they’re doing. Guess what? They don’t! They’re wrong and the profitability problem within these credit unions perpetuates.

In the seven years I have been analyzing and working with credit unions all over the country, I have only come across ONE program that was not profitable- a credit union, which had cash back on a classic card program with an average credit line of $2,200. To be honest, the processor should have never allowed this to happen- but hey, a sale of a cash back program is big bucks for the sales rep.

But let me tell you, there are hundreds of credit unions that have great love for their credit card programs- and it shows! They flaunt it on their home pages, give cards to every member, solicit balance transfers at every loan opportunity. They love their card programs and their members do too! Do these credit unions have higher than average charge offs? Yes, but their net income is off the charts. And these credit unions minimal late fees at $25, competitive rates and very few if any other fees.

What is the secret to their success? First and foremost, a CEO and Management Team that is not afraid of risk. One of the secrets remains in credit lines. If your average credit line is less than $5,000, shame on you. This will prevent usage which reduces interchange, it will ward of balance transfers which reduce finance charge income and it won’t be the primary card of choice. Do I advocate $20,000 credit lines? Not at all- but there is a balance that needs to transpire.

Time after time, the most successful credit card programs in terms of profitability and cardholder activity is tied to the credit line. You may be surprised you don’t need a lot of the fancy schmancy advisory services, direct mail and activation campaigns your processor sells. And yes, these sometimes outrageously expensive campaigns eat directly into your profitability. If your average credit line remains less than $5,000, not only will you recoup the expenses of such campaigns, your growth and profitability will stagnate.

There are many other secrets to the success of a great credit card program- and if you’re not prepared to learn them, try them or dedicate staff to the product, my recommendation is to rid yourself and your credit union of this cumbersome product. On the other hand, if you want to see your card program thrive, give yourself the time, the resources and knowledge to make it happen.

Ondine Irving founded Card Analysis Solutions in November 2003 after a 12 year career at Baxter Credit Union, 5 years at Certegy Card Services (now FIS) and a short time with Raddon Financial Group. Her focus was always in teaching credit unions in an objective manner the expense savings and income opportunities of the credit card portfolio at a time when portfolio brokers were preying on credit unions to sell their programs to banks.

Ondine is the creator of the original “School of Credit Card Program Management” in 2008 and hosts three day educational sessions on credit card program management around the country several times a year.

In 2010, she founded www.CreditCardConnection.ORG, the largest aggregation of Credit Union Credit Cards on the internet with over 1,037 fair and ethical credit union card program options for consumers. This site garnered attention from Suze Orman and was published in her books and her TV show. The site has been mentioned in numerous publications including O Magazine, MSNBC, The Suze Orman Show, CBS Sunday Morning, CBS Evening News, The Washington Post, US World News Report, Chicago Tribune, FOX News among numerous others.