Several mainstream media outlets have noted credit cards accounts are on an upward trend. If growth continues at its current rate, accounts will exceed 2008 numbers in the next 12 to 18 months.
Are you ready?
There is no doubt credit unions have ramped up their lending programs since 2008. Among the reasons these cooperatives have been successful is their close connection with members. By understanding what drives members to take action, credit unions have been able to take calculated risks and boost their growth, particularly in the area of credit cards.
The balance transfer offer, a tried and true campaign, has contributed greatly to much of credit union card issuers’ growth. A successful balance transfer campaign can add five percent to the total credit card asset of a portfolio in as few as two months. In some cases, the offers executed by IQR data analysts in conjunction with our credit union partners achieved response rates greater than 5 percent and totaled more than $1 million.
Let’s go back to why there is a market for competitive balance generation offers. It’s not rocket science. Heck, it’s not even data science. Qualified cardholders are likely to transfer their balances to a better offer – if they know it exists.
The average credit card balance on big-bank cards is two times that of the credit union average. This remains true even though credit unions are typically in a better position to offer more attractive fees and APRs. While banks have an average interest yield of 15 percent, credit unions average an interest yield of 10 percent.
When cardholders who carry balances from month to month are looking for a new card, they sign up for the best introductory offer and then succumb to high interest rates once the promo period ends. It often takes another offer to land in their mailbox before they realize they have better options. This could be the sweet spot for your credit union’s own, better balance transfer offer.
Apart from better member relationships and card portfolio growth, a smart, well-timed balance generation campaign can also help optimize your credit union’s marketing dollars. This may be hard for some to believe, as we often hear credit unions say these campaigns are too expensive for the results. However, a solid, data-driven, balance transfer campaign can change that calculus — dramatically.
As a matter of fact, there are few marketing strategies that compete with balance generation campaigns when executed thoughtfully. That thoughtfulness primarily hinges on three factors – the offer, the target and the channel, with the first two carrying the greatest weight
Here are a few recent results from balance transfer campaigns executed by credit unions:
THE OFFER: 2.99% APR for 6 months with no transfer fee
THE TARGET: 2,715 cardholders
THE RESULT: 340 responded with average balance transfer of $2,582
THE OFFER: Different promotional rates and fees segmented by cardholder group
THE TARGET: 23,000 cardholders
THE RESULT: 1,096 responded with average balance transfer of $2,248
THE OFFER: 3.99% APR for 12 months with no balance transfer fee
THE TARGET: 16,600 cardholders
THE RESULT: 890 responded with average balance transfer of $3,458
Unlike many financial institutions, credit unions don’t typically require balance transfer fees, a feature that should be promoted more aggressively.
To do this, target cardholders should be identified using past behavioral data, which includes both internal and external data – from reliable sources, such as credit bureaus. For both better targeting and risk mitigation, account selection must also involve risk and response models.
THE CHANNEL: The most popular and effective solicitation channel for balance transfer campaigns is, hands down, direct mail, but snail mail generates the best results when followed by an email.
Other channels, such as branch, telephone and convenience checks, can be effective, as well. Convenience checks, in particular, are a great way to generate interest because of their low frequency, high usability and attractive promo rates. With their extensive usability, convenience checks can prove to be very handy for making payments where credit card usage is not possible and for paying college/tuition fees. Here again, though, convenience checks are typically delivered via a direct mail channel.
Balance transfer campaigns are not only great for credit unions but also for cardholders. Members stand to experience substantial savings through balance transfers, and that creates the kind of affinity that deepens relationships and brings word-of-mouth business through the door. As you approach strategic planning season, consider whether a balance transfer campaign may be just the thing to propel your credit card portfolio to new heights.