While credit unions may be concerned with both the decline in
members holding credit cards (see graph) and increased competition, credit card
portfolios still have the ability to be a strong product for credit unions.
Effective credit card portfolio management will become more essential when
Check 21 becomes law on Oct. 28. This law will make it possible for financial
institutions to streamline their traditional check clearing systems using electronic
technology and eliminate float time, an appealing factor for many consumers.
Float time delays the need for the member to have the necessary funds until
the check clears. Eliminating this benefit will cause the popularity of this
payment system to decline, and other types of payments, including credit cards,
will see increases in usage.
This increase in credit card usage provides an opportunity for credit unions
to attract new credit card holders.
Additionally, although the number of members holding credit cards is decreasing,
their balances are not. Last year alone, the average balance increased by 4.7%.
Looking at the graph below there is a clear trend of increasing credit card
balances, which will help propel credit card portfolios.
Though there is potential for expansion, successful credit card portfolio management
requires aggressive strategies. With so many credit card options available to
consumers, credit unions must be proactive in both attracting new and maintaining
BECU, a $4.8 billion credit union in Washington, has a very active and successful
credit card portfolio. The credit union has an aggressive risk-based lending
strategy that focuses on member solutions. According to Joe Brancucci, vice
president of lending at BECU, this strategy has enabled the credit card portfolio
to be BECU’s most profitable product.
“If managed properly [the credit card portfolio] will become a core product,”
Anheuser-Busch is another example of a credit union actively managing their
credit card portfolio and seeing great success. According to a case study by
AssetExchange, CEO David Osborn estimated that the credit union spent at least
$35,000 in an aggressive credit card marketing program last year.
Osborn feels that growing a portfolio through new account acquisition is becoming
more challenging and expensive for credit unions. However, the investment was
well worth it, as Anheuser-Busch has seen an 11% increase in the dollar amount
of outstanding credit card loans in the past year. This well exceeds the national
industry average of 2.6%.
To hear firsthand from credit unions with successful credit card portfolio
management strategies, check out the webcast of one of the year's most popular
webinars, Credit Card Program