The desirable cardholder rewards and benefits of premium signature credit cards are shifting consumer expectations as to what a credit card relationship should look like. Their popularity has also moved institutions such as BCU ($2.1B, Vernon Hills, IL) to expand their own cardholder standards.
“Consumers are savvy and more attuned to the value of rewards than ever before,” says Mike Fox, director of lending project management at BCU. “Cardholders in this segment are highly engaged and highly profitable.”
Signature cards generally require the user to meet higher income and purchasing standards than other card products, and financial institutions can justify rewards and benefits with the higher interchange rate on signature card purchases, which is often set by the issuer.
BCU’s Signature Visa
Tight competition in the rewards cards market spurred BCU to develop a product of its own in 2011. At the time, its credit card product made up a significant portion of its balance sheet but overall share has since declined as other loan categories outpaced growth of the card portfolio.
BCU launched its Visa Signature as a true high-end product and targeted members of the credit union’s more than 70 SEGs, primarily in the healthcare industry, with higher incomes and spending levels.
“Signature cards enable us to maintain competitive products and keep high active card usage within our membership,” Fox.
Under current guidelines, Visa Signature applicants require household income of more than $100,000 and spend more than $35,000 annually. At BCU, 25% of its membership currently meets all underwriting requirements.
Approximately 4,500 members have the card, Fox says, representing 5% of BCU’s gross active accounts. But there is a disproportionate amount of spend on these cards. The 5% of gross active accounts represents 20% of the portfolio’s total annual spend.
We're targeting cardholders with higher levels of spend who might be residing in a different product with a different rewards structure that is not as rich as our Signature product.
The credit union offers one variation of the card, which carries a fixed annual percentage rate between 8.90% and 10.50% depending on credit risk. There is an introductory APR on balance transfers of 6.90% for the first 18 months and there is no annual fee, the latter a differentiator against competing cards, Fox says.
“The APR hasn’t been as relevant because this is a high-transactor population so we don’t get a lot of revolve out of the card,” he says.
In terms of rewards, cardholders earn two reward points per $1 spent on gas, grocery, and restaurant purchases; one point per all other $1 spent; and additional points on hotel and airline purchases after spending $50,000 annually. Cardholders can redeem points for airline travel — with no blackout dates — hotels, rental cars, vacation travel, name-brand merchandise, and rate discounts on subsequent loans. The points never expire and there is no pre-set spending limit.
“It has a richer rewards program than our [other] products,” Fox says. “Product offerings have become more aggressive in recent years as issuers compete for increased share of wallet. Rewards are a primary component.”
In 2015, BCU aims to introduce Visa Signature to a larger segment of its cardholder base, which reflects highly on the growth of a product barely four years old.
The average dollar amount on its Signature credit card line is two times that of the overall portfolio, and the average annual spend per active Signature account is more than four times that of the overall portfolio. As of year-end 2014, according to Fox, BCU holds approximately $16 million in balances on this card, with an annual purchase volume of $90 million.
Fox declined to provide exact figures on the card’s return, but BCU does track profitability in the portfolio and Fox said it is, “ROA positive.”
And still, the product grows. Purchase volume grew slightly less than 50% year-over-year, matching what the credit union has seen since the product’s introduction.
Fox attributes this to the institution’s commitment to growing the portfolio. It is actively migrating existing qualifying cardholders into the Signature product to earn an interchange rate that is, on average, 25-to-30 basis points higher than its other rewards cards.
To do this, BCU promotes the value of its Visa Signature vis-à-vis its other rewards cards. It targets members who don’t carry the Visa Signature but are qualified to upgrade — based on the information BCU already has on file — through quarterly direct marketing initiatives and features the product in branches and online.
“We’re targeting cardholders with higher levels of spend who might be residing in a different product with a different rewards structure that is not as rich as our Signature product,” Fox says.
To increase growth in this segment, the institution plans to restructure its product lineup, relax the product’s requirements, and move more accounts into Visa Signature. Although BCU has not yet finalized the new standards, Fox expects more than 50% of new rewards cardholders will meet the new underwriting requirements.
“Today we think of Signature the same way we thought of Platinum a few years ago,” says Fox regarding public awareness and interest.
As far as what other credit unions should know before offering a signature card, Fox’s advice is two-fold: One, determine the opportunity at hand and research to see if there is an existing segment that has the interest and finances to support this product. Two, make sure the product provides value beyond other rewards cards.
“Signature cards have become more mainstream, but there’s significant revenue opportunity,” Fox says. “Given the fabric of the population today, I would say that most credit unions have the opportunity to offer a signature card.”