CU Credit Card Portfolios Require Constant Care To Be Competitive

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As the already-competitive credit card arena continues to heat up even more, credit unions are looking for ways to make their card portfolios profitable-or get out of the business.

Billions of credit card offers are flooding credit union members' mailboxes, their TVs, their radios and their newspapers, according to William Koo, CEO of AssetExchange, the Portland, Ore.-based credit card consultancy. And the market saturation is proof of just how tough the competition is in credit cards today, Koo said, offering up the following figures:

* There are 8.3 credit cards per household

* If you include private label, there are 14 cards per household.

* There are, on average, five cards per person-and that's including every man, woman and child.

So, in a world where there are enough cards so that every man, woman and child can have five to choose from, how does a credit union get its members to choose its card?

Koo suggested there are a number of new products out there that are designed to grab attention.

One, for example, is the "blink" contactless card (see related story, page 1). "Blink transactions are 50% faster than swipe transactions, and 60% faster than cash," he told the audience at NAFCU's 38th Annual Meeting. "Think about whom that appeals to. Think about merchants like McDonald's."

Another relatively new product is the minicard.

"My wife has one. This is the only card she ever uses any more. Why? Because it's right on her keyring," Koo related. "It's not always about rewards or interest rates, it's also convenience."

The point, Koo said, is that a credit union has to know what moves its members.

It's easy to just grow the number of accounts-loosen up underwriting, he noted. Similarly, it's easy to grow balances-lower interest rates for everyone. It's even easy to make a card more enticing-offer rewards for everyone, he said.

"Now, make your card portfolio, grow, competitive, maintain positive net yield-and make all of this sustainable," Koo offered. "This isn't so easy."

And that should be the goal of every card program. To do it takes a lot of work-and it's work that never ends.

"You need to look at what you have. Do you know which ones are growing, which ones are slowing, which accounts are revolvers, which are transactors," Koo asked. "If you just look at the acquisition of cards, it's easy, the tough part is knowing if you're getting desirable accounts."

The first step, he said, is making one person accountable for the credit card program. Yes, it takes a team that includes marketing, lending and other departments-but there has to be one person who is in charge of and accountable for the success of the program.

Next: mine the data. Most credit card reports produced by card vendors are in a format that requires hours of review, Koo said, suggesting CUs ask vendors to produce easier-to-read reports for them.

"Your vendors do not want you to sell your portfolio, so ask them to convert this data into charts that you can quickly see the trends," he advised. "Then you need to review this often. When I worked for a bank, I reviewed these reports daily. Maybe daily is overkill for you, but at least monthly. Quarterly or yearly is not enough."

Mining the data will allow the credit union to focus on discrete segments of the portfolio and use different offers for different segments to drive member behavior, he said.

One segment of particular interest: members who take the card but then never use it.

"Take action on inactive accounts, call and find out whey theyre' not using the card," he said. "When Nike sells you a pair of shoes, they don't care if you never wear them or not, because they make their money on the front end. That's not how it works with cards. Those cards are costing you money if they're out there and not being used."

It's for this reason that making a card portfolio profitable isn't a one-time fix. "This is a race with no beginning and no end, there is no finish line," Koo commented. "You're on a treadmill."

And it's a treadmill that some credit unions have decided to leave behind. With an apology for even bringing this issue up, Koo said credit unions that might want to investigate selling the card portfolio are those who:

* don't have the money to keep marketing

* don't have the personnel to drive the effort

* don't have the commitment to the effort

CUs with declining portfolios are finding it is expensive to reverse negative trends and feel they cannot offer competitive products, Koo explained.

But if a CU is looking to sell, it can't just rely on the brokers to do the due diligence for them. Koo suggested to beware of brokers who say:

* "You can't compete"

* "Our analysis shows that you must sell"

* "Our buyer is the best for you"

"Get the analysis done and make your own decision," Koo urged. "Look at both as viable options, then set your course and commit to it."


Issuer Accounts Marketshare

MBNA/BofA $135 Billion 23%

JP Morgan Chase $133 Billion 22%

CitiGroup $116 Billion 19%

4,600 CUs $22 Billion 4%

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