Credit unions going head-to-head with major credit card companies may face some challenges. A recent article from CreditUnions.com noted how the limited credit card offerings of some smaller financial institutions (FIs) may pale in comparison to credit card giants like Capital One. These so-called “giants” often seem to have more resources and better technology.
However, consumers choosing to utilize credit unions did so for a reason. These consumers will remain loyal if their credit unions offer them compelling products. Credit unions looking to retain their cardholders and attract new ones in 2016 should focus on the following key elements:
1) Rewards: Research shows rewards are one of the top reasons cardholders choose a specific card. Cardholders with attractive rewards programs tend to spend more on average than those with unattractive programs. To encourage front-of-wallet behaviors, credit unions should adopt rewards programs that meet cardholders’ specific needs. Offering bonus spends like cash back and double rewards points in addition to common rewards can also help stimulate spending.
Credit unions should also be vigilant about managing the profitability of these bonus spends. When not managed correctly, rewards programs can end up costing banks more than they are worth. Keep costs under control by: capping bonus spends, managing redemption value and having higher APRs for purchases and balance transfers on rewards cards.
2) Credit Limits: Cardholders often reach for cards with higher limits to revolve a balance or make purchases. Unless there is a compelling reason to choose cards with lower limits, such as loyalty or rewards programs, cardholders will often ignore the lower-limit cards in their wallets.
Line assignments are very predictive of the average balance on a card. The industry average credit limit is around $10,000, whereas the average balance on a card is around $2,700. Credit unions should consider reviewing their underwriting policies and determining where they can take calculated risks in terms of line assignments. They should also consider annual credit limit increase campaigns. Both of these efforts will help smaller FIs stay relevant to cardholders as they grow and expand their credit worthiness.
3) Cardholder Experiences: Qualified cardholders typically have a lot of options when determining a card of choice. Credit cards that prove challenging to use will not encourage front-of-wallet behaviors. Cardholders want (and expect) simple interactions with their credit unions to make payments, resolve issues and ask questions.
Credit unions should survey their teams to determine common cardholder complaints or escalations. They then can explore if there are controls or automation not yet in place that would improve the cardholder experience. The right controls and automated programs, like auto pay and over-the-phone payments, make it easier for cardholders to interact with their banks. Cardholders often expect these features to be in place, resulting in a perceived gap if their credit unions don’t have them.
Credit unions looking to take on credit card giants should not feel intimidated. By focusing on the features that matter to cardholders, such as those outlined above, smaller credit unions can successfully compete. Simply adapting offerings to match cardholders’ changing needs can mean the difference between a credit union’s growth and its lackluster performance.