Larger Credit Unions' Credit Card Results Point to Economies of Scale

Consumer demands have played a large part in influencing the dynamics of the credit card marketplace. Credit cardholders are increasingly requesting rewards programs, Platinum cards, low interest rates, and high-quality 24x7 service, which makes it difficult for smaller issuers like credit unions to satisfy their expectations.

 
 

Consumer demands have played a large part in influencing the dynamics of the credit card marketplace. Credit cardholders are increasingly requesting rewards programs, Platinum cards, low interest rates, and high-quality 24x7 service, which makes it difficult for smaller issuers like credit unions to satisfy their expectations.

As a result, credit card loans outstanding have risen by only 1% in one year for credit unions, compared to the industry's growth of 8.8%. In addition, member penetration rates have declined nearly 3 percentage points since 1999, to just over 15% currently. On the other hand, credit union charge-offs are much lower than the industry average - only 2.3% compared to 6.3% - due to more conservative lending criteria.

Although some smaller credit unions have been able to grow their credit card programs, industry trends suggest that larger credit unions are generally seeing better performance. A review of key credit card metrics shows that the largest credit unions ($1 billion or more assets) have twice the average member penetration compared to the smallest group (less than $50 million assets). In addition, average balances are over $700 higher among the largest credit unions, compared to the smallest. This reflects a wider trend towards issuer consolidation in the credit card industry, and is driven by economies of scale.

 

 

 

Sept. 8, 2003


Comments

 
 
 
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    Anonymous
     
     
     
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    Anonymous