A Credit Card Program Can Be a Credit Union’s Highest-Earning Asset
by Card Services for Credit Unions
A robust credit card program is one of the best ways credit unions can create value for members, build loyalty, cross-sell products, generate revenue, and keep banks from raiding its top membership with their own lucrative programs. By implementing effective strategies for increasing penetration, activation, and usage (PAU) of the credit cards they issue, credit unions can stay competitive in the marketplace and boost income.
For example, consider a 40,000-member credit union with 3,600 (9-percent penetration) credit card accounts; of these, 1,980 are active (55 percent activation) with an average balance of $1,500 and 5.5 transactions per month. A portfolio with these performance attributes could easily generate in excess of $400,000 in annual revenue (finance charges, interchange, and fees). Increase penetration to 13.5 percent, average balances to $2,000, activation to 60 percent, and utilization to seven transactions a month and this portfolio generates an incremental $330,000 in total revenue for the credit union.
“Return on assets, fee income, interest income, and overall profitability are all higher for credit unions that have a credit card program, compared to those that do not,” says Bill Lehman, vice president of portfolio consulting services for CSCU. “Credit cards are a very effective way to improve the loan/share ratio.”
So why don’t all credit unions have robust credit card programs?
It’s a matter of culture and aversion to risk.