Credit Card Lending’s True Advantages

An analysis of credit unions with and without credit card portfolios shows key differences in financial returns and income.


Credit unions with credit card portfolios outperform credit unions that don’t have credit card portfolios in several financial metrics that Callahan & Associates analyzed, including return on assets, non-interest income to assets ratio, and delinquency.

Credit unions have offered credit cards to members since the 1970s and Americans have come to rely heavily on them. Members had 13.8 million credit cards at 3,850 credit unions as of the first quarter of 2012, up 3.3% from same quarter last year, according to Callahan & Associates’ Peer-to-Peer data. Credit union members' outstanding credit card balances grew 4.7% to $36.6 billion during that time, with another $77.2 billion in available credit, up from $74.2 billion in available credit a year prior.

Prior to the recession, many credit unions sold their credit card portfolios to third parties, but that trend has reversed in recent years. Now credit unions are buying back their portfolios or starting new ones. Callahan & Associates compared several financial metrics from credit unions that have credit card portfolios to those that don’t to determine what effect credit card portfolios can have on financial performance.

A significant number of smaller credit unions do not have credit card programs while a significant number of larger credit unions do. So in this analysis, credit unions without credit cards were limited to those with more than $40 million in assets, to achieve a comparison of credit unions with similar average asset sizes and therefore a more accurate comparison of financial performance.

Credit unions with credit card portfolios posted a return on assets of 86 basis points, 13 basis points higher than their peers without credit cards. The higher number was driven primarily by stronger non-interest and interest income, despite higher provisions for loan losses. Overall loan growth of 3.0% was five times faster than 0.6% reported by credit unions that don’t have credit card portfolios. Despite this stronger growth, the average member relationship (excluding business loans) was nearly $200 higher at credit unions that don’t offer credit cards.

Within the non-interest income portfolio, the results were mixed. Credit unions with credit cards posted a smaller average amount of fee income, but they posted a higher average amount of other operating income. Since other operating income includes income from both debit and credit card interchange fees, it is likely that the additional income from credit card interchange helped to drive balances higher for credit unions with credit cards. This larger difference in other operating income led to credit unions with credit cards having a non-interest income to average assets ratio that was 16 basis points higher than credit unions without credit cards.

Credit card delinquency was 1.01% in the first quarter for credit unions that offer them. Delinquency for all loans, except credit cards, at these credit unions was 1.47%, and their overall delinquency rate was 1.44%. Overall delinquency at credit unions that don’t offer credit cards was 1.49%. Net charge offs for credit cards was 2.59% in the first quarter for credit unions that offer them, pushing their overall net charge off rate 10 basis points above their peers to reach 81 basis points.

As credit unions introduce credit card programs, they are able to improve service to members. Not only will members be able to get a credit card with the financial institution that they already trust, but the credit union will benefit from increased interchange income on credit cards. While credit cards are not the best fit for every credit union, they do have financial benefits for those that offer them.




July 30, 2012


  • I'd love to know over what time period this data was analyzed. If you went back at least a few years, I think you come to a different conclusion. These portfolios look good right now, but many looked really, really bad a couple of years ago. Does Callahans have a pony in this race to promote? They should be more objective.
  • Credit card lending is different than auto or mortgage lending, but if adequate effort is given to the process it can be very lucrative for issuers. Comment #2 is spot on.

    Some CUs sold their portfolios to make a quick buck on the premium and divest themselves of some work, and perhaps a little risk.

    As to the question of whether CU issuers are equipped to handle the fraud risk, the same could be said of debit cards. And considering that next year merchants will be able to accommodate EMV cards, we should be in a far better position to guard against fraud.
    Card Guy
  • While the charts look interesting for a 4th grade class, I would expect a little more in-depth statistical rigor from Callahan. What is really important is the distribution around those averages (or more appropriately the means). Are the differences in the 2 populations really meaningful or are they the result of statistical error? What is the degree of confidence?

    If you don’t want to lose the reader into the technicalities of your statistical analysis, at least mention that you did go through it…Otherwise, your conclusions are as meaningless.
  • Your are right that CC portfolios are among the highest yielding loans. But when you closely examine, what used to be the cost of funds for your paid in fulls each month... along with your real overhead, bonus points, insurance, bankruptcy and chargeoffs as well as fraud, that yield suddenly comes into a totally new perspective... and I'd bet a net loss for many too!

    Also how many credit unions are really equipped to handle the fallout and costs from a major fraud event?

    Until our country gets its act together security wise... we're the only country in the world that still has the mag stripe authorization process... it's really a joke compromise wise... I don't want to ever face coming on a Monday morning with 500 members with fraud reports to wade through.

    It would appear that many credit unions are awash in liquidity, eroding their NW positions. Exactly what is that buying them?

    Or, why would you continue to bring money in that you aren't, or can't loan out?

    Are credit cards the answer, an answer, but I don't think the right answer.

    Gerd Henjes, Pres./CEO

    Gerd Henjes
  • I'd imagine it is because credit card portfolios are among the highest yielding loan asset a credit union can have on the books. When underwritten well, they are extremely attractive (especially in this low rate environment).

    Why do you think someone wanted to buy your portfolio in the first place? Why are most credit unions that previously sold getting back into this business?

    By and large, we (and most credit unions) don't need the cash from a sale nearly as much as we need a productive outlet for liquidity. Credit cards are a great way to show members competitive value (better rate than most major issuers) and return strong value to the co-op.

    Hope this helps.
  • Gee...

    Guess I didn't know what I was missing since we sold our credit card portfolio in 2001!

    I would say my credit union's numbers without credit cards, have greatly exceed our peers with credit cards.

    I'd be interested in knowing why you seem to see it the other way around.

    Gerd Henjes, Pres./CEO Countryside FCU
    Gerd Henjes