CORONADO, Calif. — Most credit unions have a not-so-secret weapon for growth, they just don't know its strength or how to leverage it: the credit and debit card portfolio.
"Credit unions are unaware of their card programs' contribution to profitability and ROA," said Bob Hackney, president of Card Services for CUs (CSCU), Tampa, Fla., during his presentation at CU Journal's Grow Show.
And it's not insignificant, after all, nearly half of all consumer payments are done via plastic, he said.
Not surprisingly, Hackney said the first thing credit unions shouldn't do right now is sell the credit card portfolio. The next step is to reduce risk exposure. "You should collect by risk, have a collections policy and philosophy that is driven by risk," he advised.
Citing a 2006 Visa study on CU card profitability, Hackney offered a chekclist of areas of opportunity:
- New members/account acquisition — consumers are seeking a safe harbor, and credit unions can be that harbor.
- Platinum upgrades — in looking at the credit card industry as a whole, about 65% are in platinum, but breaking out CUs reveals that only 34% of CU cards are platinum.
- Rewards — 70% of all cards in the U.S. are rewards based.
- Balance transfers — 74% of revenue comes from finance charges, and finance charges account for essentially of the revenue growth in 2008.
"If I could go in and set up a credit union's card portfolio, they would all be platform, and there would be two types of platinum-one with rewards and one without rewards," Hackney said. Why? Because platinum cards have 72% better revenue than their classic counterparts, and rewards drive volume.Of course, not all rewards programs are created equal. "I normally steer people away from doing a cash-back rewards program because you end up with 100% redemption," he said, but added that he knows of at least one credit union that has been able to do a cash-back rewards program and keep it profitable.
If you're still not sold on offering platinum cards and/or rewards cards, Hackney offered one last piece of advice: "If you do nothing else, do a credit line review," he urged, suggesting CUs should focus on active lines when renewing credit line utilization.
Hackney also offered a quick legislative update.
Calls for changes to the interchange fee system continue and are of great concern to credit unions, Hackney said, as credit unions received some $3.5 billion in interchange income in 2008, representing about 36% of non-interest income.
"Merchants are trying to suggest that interchange fees are unfair and are driving up the cost of their goods," Hackney said, but adding that in his opinion it is unlikely that any savings merchants accrue as a result of reducing interchange fees are not likely to be passed on to consumers.
To get a fuller accounting of what the merchants are trying to accomplish, Hackney suggested visiting unfaircreditcardfees.com.
On the side of credit card issuers-including credit unions-is the Electronic Payment Coalition (electronicpaymentscoalition.com), which is trying to preserve interchange income.
Legislation that is much further along in the congressional pipeline deals with universal default, payment allocation and APR changes, he said. Because regulators have already issued their own proposals on these topics, Congress is looking to act fast as it doesn't wish to be "trumped" by the regulator. As a result, Hackney said, it's not a question of fighting this legislation but in hoping that the least damaging version is passed.
The House version, introduced by U.S. Rep. Carolyn Maloney (D-NY), appears to be less damaging than the Senate version, championed by Sen. Christopher Dodd (D-CT), he said,
