Total loan growth has decreased slightly in 2010, but renewed opportunities in card lending present credit unions with a solid strategy to recover lost ground and grow new loans this summer…they just need to know where to look.
Nearly one in eight credit unions struggled with credit card profitability in 2009, says credit card expert Timothy Kolk. And Kolk expects that problem to continue into 2010. While overall demand and opportunities for cards are booming, credit unions must examine several factors of their strategy to eliminate pitfalls and maximize returns in the midst of the credit heyday.
One potential loss of profits, even in a high demand market, comes from “reductions in the average interest rate charged by credit unions,” says Kolk. Another factor is rising delinquency, something influenced by economic factors and lenders’ riskier card practices.
“Since 2000, the average balance per account increased from approximately $1,600 to almost $2,700 today,” Kolk says. “Current credit union card balances stand at more than $35 billion with no signs of slowing growth.” In an effort to continue managing this growth profitably, credit unions must be selective in how and where they are allotting their credit card resources and how they are structuring their programs.
“Carefully designed and segmented changes can add to the bottom line while also ensuring as many member needs as possible are met,” Kolk says.
“Build a variable low-fee offer to top-tier credit profiles,” suggests credit union consultant Chris Oldag. According to Oldag, credit cards present profit opportunities when properly approached. “Offer attractive rewards, but stick to giving great deals to the no-credit-risk group only.”
For less than ideal card holders, there is also increased opportunity in lines less than $3,500 for members with credit scores below 680, says Oldag. To build the best deal, “offer risk-based pricing and control the credit limits.”
For younger members — who likely have little-to-no credit — credit cards play an indisputable role in financing college expenses. Legislation like the Card Act will cut opportunities to directly approach college-age cardholders, but credit union’s can use new regulation as a way to get parents to co-sign, says Oldag. According to Sallie Mae, 9 out of 10 undergraduates paid for education expenses with credit cards in 2009; this is a convenience neither students nor their parents will want to lose.
Not only will having parent co-signers for these cards likely increase stability and performance but — as Oldag advises — you might score the mom and dad relationship because of outstanding service to the student.