Credit unions deep in planning season may want some guidance on how to tie the narrow needs of a "budget" into a more complete operational plan for the coming year and beyond.
If you have that question, it shows you’re ready to develop an annual plan and reach toward identified specific goals. A good plan provides enough detail to guide action throughout the year and sets milestones along the way to measure and justify further investments in a credit card program. That program is, after all, often the best-earning product a credit union has. On the other hand, as too many have discovered, operating a credit card program without a future-looking plan is at least frustrating and typically leads to underperformance and too-few resources.
To develop a strong annual plan, first take a deep dive into the performance of your existing program. Review trends and key credit card portfolio performance indicators. Create a snapshot by tracking about 20 critical, non-financial measurements in a card portfolio, including:
- Balances (both total and revolving)
- Credit line usage
- Accounts (total, active, inactive)
- Purchase volumes
- Delinquency Metrics (both volume and dollar amount)
- Credit Loss Levels (by cause of charge-off)
Keep a monthly report of these elements with at least a three-year running history to develop good trend lines. After that information is available, develop a profit-and-loss statement for the card program that includes:
- All revenue items: Interest, Interchange, Fees
- Credit losses and fraud
- Funding costs
- All expenses (Rewards, Vendors, Internal Expenses, etc)
Develop this ‘start point’ profit-and-loss statement without including new account marketing expenses because an issuer first needs to understand the performance of its program before investing in new accounts. Once it is proven that a credit card program generates a strong bottom line (typically about 2% to 3% ROA) then it is easier to prove that marketing resources should be made available to grow the program further. And then you can get them in the budget and move forward confidently.
Once current performance is proven, a credit union can then develop their annual operational plan. At a high level, this should consist of two sets of tactical steps for a credit card program:
1) Plans for the existing portfolio of accounts. Credit card programs have the advantage of providing abundant, low-cost opportunities to improve performance and grow within existing accounts. Too many credit unions leave these opportunities unrealized.
2) Initiatives to generate new accounts. New accounts are critical to a healthy program, and in today’s banking environment there are more potential card holders open to your message than ever before.
Think about a marketing plan that follows through these paths:
Click on images for larger versions | Source: TRK Advisors and Callahan & Associates
Once an issuer has concrete thoughts on these growth opportunities in place, they can then:
- Develop a full-year marketing calendar for all initiatives
- Ensure prework and collateral development starts in time for each
- Keep the organization informed on progress against goals, and
- Adjust as new opportunities arise or things are learned within the year.
Managing a credit card program is not easy. In fact, it’s more difficult than ever, but with current negative consumer feelings about the largest and most competitive credit card issuers, credit unions have a great opportunity to continue to grow card programs, provide great value to members, and build up entire relationships for the long term.