by: Marvin M. Garland, Chief Operating Officer, LEVERAGE
Over the last couple of years, many credit unions across the country have experienced significant success and growth. Thanks to a recovering economy and a certain disdain for banks, credit unions have seemingly flourished. This is a far cry from 2007 when most financial institutions were making tough choices about the services they would – and could – offer. Whether you’re new to the market, getting back into the market, or have an existing credit card portfolio, now maybe the time to promote credit cards.
The financial outlook is different for many credit unions, large and small. Although the number of credit unions selling their credit card portfolios increased exponentially between 2000 and 2008, that number is slowly decreasing. Many credit unions are taking into consideration the many aspects of selling credit card portfolios, along with how doing so will affect membership growth. In May 8, 2012 report, Fitch Ratings Inc. said that charge-offs are at record-low levels and will likely hit bottom within the next three-to-six months. Fitch also noted that major card issuers saw stronger growth in credit card purchase volume during the first quarter of 2012 compared with a year ago.
Below is a short list of things to consider when determining the future of your credit card portfolio:
- Member relationships/control. Providing members with a variety of services is critical in maintaining a connected relationship. Credit cards provide another touch-point to your members.
- Credit card use generates revenue (interchange income)/contributes to overall portfolio. According to the Raddon Financial Group, credit cards are the highest earning asset for many credit unions, averaging an ROA of 1.83 percent versus 1.23 percent for home equity loans, and 0.32 percent for auto loans. Credit cards can account for a significant amount of income for many credit unions, and can weigh as much as 40 percent on the overall portfolio.
- Credit card accounts can be used to cross-sell other products and services. By simply having access to members through their credit card account, credit unions can market other financial services including special offers for credit card holders.
- Attracting non-members through credit card programs. Many credit unions are seeing success garnering new members simply by promoting more attractive interest rates and other credit card incentives.
Retaining a credit card portfolio involves a high level of strategic thinking. It is important to note, in order to keep a portfolio performing well, credit unions need to be proactive and monitor cardholder behavior, product attractiveness, and delinquency.
Marvin Garland is the Chief Operating Officer for LEVERAGE, the LSCU Service Corporation. LEVERAGE is a business services provider that has a revolutionary ePurchasing platform and a contract management system in Ventelligence, an automated compliance execution powered by ComplyTrac, as well as many other solutions. Visit myleverage.com to learn more about how credit unions have leverage in the marketplace. You can follow LEVERAGE on Twitter or LinkedIn.