By: Ondine Irving
I cringe when credit unions seek to rid themselves of their credit card program, whether through a bank or credit card processor, CUSO or any other entity. I don’t care if these companies are “credit union” friendly or not. When you sell your credit card program, you are selling your credit union name, reputation, members and the control of managing your own reputation.
We thought we were through this turmoil of portfolio hungry vultures earlier this decade, but beware, the vultures are back–and in very subtle ways. They could be disguised as a consultant, adviser or even a processor. Having worked specifically within the credit union industry for the past 28 years, I have never, nor will ever, encourage a credit union to sell their credit card portfolio. If anything, I would suggest phasing out a credit card portfolio before selling your credit union’s name, reputation and members to any company.
Be on the lookout for subtle sales pitches from advisers who tend to point out the negative aspects of credit card portfolio management: the risk, the charge offs, and the delinquency. When working with various consultants and advisers, be sure to understand their true motivation. Are they painting such a bleak picture in an effort to get you to consider selling your credit card portfolio just to improve their own bottom line? The targets are often credit unions in weak positions when it comes to card program operations and knowledge. These are the credit unions that have not likely invested the time to truly learn the process of effective credit card program management. My intent is to help credit union’s K.I.S.S. their credit card portfolios- as it truly is that simple.
In the nine years I have been analyzing and working with 500-plus credit unions throughout the country, I have only come across ONE program that was not profitable- a credit union that offered cash back on a classic card program with an average credit line of $2,200. The credit union ultimately phased this program out of the product line- but never considered selling.
Secrets to Loving Your Credit Card Program
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, and solicit balance transfers at every loan opportunity. They love their card programs and their members do too!
What is the secret to their success? First and foremost, a CEO and management team that is not afraid of risk (and the vultures love to prey on your fear of risk!) These credit unions maintain credit union friendly programs with minimal late fees at $25, competitive rates and very few if any other fees. The usage is driving the profitability due to the attractive features and credit lines of the program.
One of the secrets remains in the simplicity of credit line management. If your average credit line is less than $5,000 (and many credit unions are below this), this will prevent cardholder usage which reduces interchange and it will ward of balance transfers which reduce finance charge income. A low credit line credit card will not likely be your members’ primary card of choice. Nationally, the average credit union credit card limit stands at a mere $7,200 with $25,000 caps in most cases.
You may be surprised you don’t need a lot of the fancy schmancy advisory services, direct mail and activation campaigns that your card processor may sell. These sometimes outrageously expensive campaigns eat directly into your profitability. If your average credit line remains less than $5,000, not only will you not recoup the expenses of such campaigns, your growth and profitability will stagnate, as no matter what you are marketing, usage or activation, if the credit lines aren’t strong, portfolio growth will always be limited.
Do successful card programs of these credit unions have higher than average charge offs? Sometime, yes. But their overall net income is off the charts and more than compensates for the losses.
Keeping Your Program Member and Credit Union Friendly
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. I’m even seeing some credit unions assess a minimum finance charge and increase the foreign transaction fees. Just like the banks charge!
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 about your particular credit union. 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 and they need to be measured each and every month for each and every credit card program you have.
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 again. Profitability problems will tend to perpetuate through reduced cardholder usage and reduced balances.
As I write this article and working for a sizeable credit union, I have just identified an additional $100,000 annually missing in fee income, not to mention an additional $50,000 annually in credit card processor expense savings. Certainly not chump change! These newly discovered savings just might prevent the credit union from having to increase fees and rates to members or worse, sell their portfolio.
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. I’m even seeing some credit unions assess a minimum finance charge and increase the foreign transaction fees. just like the banks charge!
It’s not complicated at all–although others may beg to differ and baffle you with trends, graphs and statistics to add to the confusion and complication scenario–the old “analysis paralysis” scenario. Some try to complicate the heck out this product and again, what is their motivation? It’s not that difficult, I promise. It is simple calculations and knowing what to offer, what to ignore and setting pricing and fees fairly and appropriately and letting your members know you have a credit card program! K.I.S.S. your credit card portfolio!
There are many other secrets to the success of a great credit card program- and if you’re prepared to learn them, try them and dedicate staff to the product you will learn to love and protect your credit card program from the vultures beginning to make the rounds again.
Ondine Irving founded Card Analysis Solutions (www.cardanalysissolutions.org) in November 2003 after a 12-year career at Baxter Credit Union, five years at Certegy Card Services (now FIS) and a short time with Raddon Financial Group. Irving created 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. 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 or other entities. 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.