During this time of economic insecurity, it is more important than ever to effectively manage one of the most profitable products credit unions offer: credit cards. The return on assets for credit card programs is typically twice as high as a credit union’s other business lines and proper management of your credit card program can improve revenues and maintain an important member relationship product.
Outstandings on credit card programs issued by credit unions grew 16.3 percent over the previous 12 months, which is a slower pace than the year before. Over the same period, the delinquency rate on these loans rose to 1.4 percent from 1.0 percent in 1Q 2007. Together, this suggests “the obvious” - that overall, members are cutting back on spending and more members are having a tougher time paying off credit card debt. While rising delinquency is of great concern, it is important to remember that the number of credit card accounts in distress is still very small, with over 98 percent of members still paying their credit card bills on time.
Now is not the time to go into an ultra-conservative lending mode. Credit card programs should be viewed as long-term business lines and members are reminded of your credit union every time they reach for your card to conduct a purchase. But the time is now to manage the small percentage of problem accounts more aggressively before they become hopeless charge-offs. Some telltale signs that a cardholder may be headed for trouble:
- The use of cash advances
- Accounts that are taking longer to pay than usual for the particular cardholder
- Cardholders making minimum payments who previously paid more
- Cardholders consistently utilizing a higher percentage of their credit line
Help members solve their problems
Credit unions are known for working with their members to solve problems and find workable solutions, and technology can help facilitate the process – whether implemented through outsourcing services or via expert consultants. One way to accomplish this is to use automated, non-confrontational notification systems to make contact with accounts that have just missed their payment due dates. An issuer can also implement customized analytics to identify accounts which historically miss their due dates but ultimately always pay. Credit card issuers should also develop a formal process for establishing flexible re-payment plans for troubled cardholders who are sincere in their desire to resolve the delinquency and assist these cardholders in using a credit counseling service where appropriate.
It is not recommended that credit card issuers increase current penalty fees or pricing for delinquent accounts - that just adds to cardholder grief and does not solve the root cause of the member’s payment problem.
During this economic downturn, cost management is also an important part of your card management program. Focus on containing costs without compromising quality or growth initiatives . In other words, eliminate “wasted” expenses and seek out ways to use technology to reduce traditional costs - but then re-invest those savings into program improvements and growth initiatives. Your processing vendor’s account management team should be able to help you analyze ways to use their services more cost effectively. Examining operational processes is sure to bring to light both hard and soft expense savings. Leveraging technology to reduce expenses can include migrating cardholders from paper statements to e-statements, since postage can be as much as one-third of your processing expenses. Using customized analytics to reduce fraud losses, and automatically managing credit lines also improves the efficiency of collections activities.
Work hard to keep the good accounts
Remember that 98 percent of cardholders are making payments on time. Issuers should not neglect potential growth opportunities with the vast majority of member accounts that are in good standing. Work hard to keep the good accounts with you because every time a cardholder uses his or her card, you and your members benefit financially. Loyalty programs that tie credit card accounts in with other credit union products can be used to keep your members engaged and can help mitigate the temptation posed by the constant flood of direct mail from national card issuers. It is also useful to measure and manage the penetration rate of your credit card product into your overall customer base and to invest in an annual marketing budget focused on growing your already-profitable card program.
Since 1981, the principal focus of Primax has been to strengthen the customer relations and profitability of its clients with customizable, high-quality card-processing programs, products and services. Primax designs, implements and supports credit, debit, gift and commercial card programs, products and services for financial institutions throughout the U.S. Please log on to www.primaxpayments.com/ANALYSIS to request a free, no obligation detailed profit and loss analysis of your credit card program.