Motor Parts FCU significantly increased the yield and penetration rate of its credit card portfolio using a strategy that some in the industry might consider counterintuitive: it stopped outsourcing credit cards and brought it back inhouse, it eliminated all the rewards and points programs, increased the late fee and reduced the rate.
"We did an analysis of what the program was costing us, and we got an unpleasant surprise," said Heidi Kassab, CEO of the $128-million CU. "We were losing money on the platinum card program-about $16 per card. Now we're making $116 per card."
The first thing MPFCU did was eliminate the rewards program entirely. "We did have some negative feedback on that, but I can count on two hands the number of cardholders who complained, and not surprisingly, they were all people who paid off their card every month. While we love to have some members who do that, our goal was to have more people with active balances, balances that weren't being paid off every month. Most of them stayed with us anyway, but maybe they don't use our card quite as much. Frankly, our penetration went up so much that we never knew how many we might have lost when eliminated the rewards program."
That was mostly because of the fixed rate the credit union offered instead of the rewards program. The rate had been at 11.9% before being slashed to 8.9%. At the time, back in 2000, that was still a fantastic rate, Kassab explained, adding that the CU is considering another rate cut.
Credit Limit Removed
The other big attraction: removing the standard $10,000 credit limit. MPFCU uses a formula to handcraft a limit for each cardholder, which means some members could easily have limits of $20,000 or $30,000.
"Most credit unions don't do that kind of thing, but we have members who would definitely qualify for much higher limits if they went to someone else, and we don't want them to go to someone else," she offered. "If a member wants a platinum card, they want that high-end limit and the prestige that comes with it."
The higher limits did boost the portfolio's losses from 1.49% to 1.72%, but even with the ncrease in losses it leaves the CU with a higher yield-5.25% compared with 4.75% prior to the changes.
Other features of the card include a 20-day grace period (which helps mitigate the fact that the CU increased the late payment fee) and no annual fee.
The results: average balance went from less than $1,400 to $2,700 and household penetration went from 18% to 38%. "Even with a lower rate and with higher losses, we still improved our bottom line," Kassab commented.
Moreover, MPFCU has seen a decline in members this year-and still penetration is up.
Although the focus of the changes was on the CU's platinum card, Kassab said MPFCU's classic card also benefitted, showing an increased yield of 14.88% up from 7.35%.
MPFCU also offers a platinum card tied to its home equity line of credit and a "Boom" card for teens.
Perhaps one of the biggest changes of all was bringing the entire credit card program back inhouse after years of outsourcing to a third-party vendor.
Handled By Loan Department
"We used to have a department of three dealing with this, but when we brought it inhouse, we were actually able to bring it right into the loan department," she related. "Our members were really impressed that when they called the 800 number on the card, they actually got the credit union and not someone else. We were able to tie the card into our homebanking, too, so they're able to check their balances and purchases online."
The one potential downfall-and one MPFCU was pretty concerned about-was the loss of a 24/7 phone number.
"We were really worried about that. But we've had no complaints," she said. "We really worked hard on educating the member so they would know, if you call after 5:30, you're not going to get a live person on the phone."
Instead, cardholders leave a message on the automated phone system saying they have lost their card or have had it stolen, and then the CU gets back to them the next day. "I think it really helped that they have access to the account through the homebanking program," Kassab noted. "We don't get all those calls from people who just want to know what their balances are."
Educating Members
And the credit union has also educated its members about the benefits of the card being completely in-house. "Our card numbers aren't floating out there. No one else sees them, we don't share that information with anyone, and there's some added security in that," she said. "And when people call, they know they're getting the credit union and not someone else."
As for future plans for the portfolio, there's one thing MPFCU definitely won't do: it won't bring back rewards. "That comes up at every conference, but we're just not going to do it," Kassab said. "It just doesn't make sense."
On the other hand, a rate cut and a balance transfer promotion are both in the offing in January, when post-holiday financial reality sets in for many consumers.
