SIOUX FALLS, S.D.-A credit union can't effectively manage its credit card portfolio unless it uses a scorecard and consistently measures results.
That is the stance of Capital Services, which recently expanded its reach to serve credit unions and banks across the country. Previously the company had been providing payments products portfolio management services primarily to banks on a regional basis.
CEO Chuck Hendrickson said financial institutions must be able to analyze their portfolios at a very granular level and make changes necessary to maximize returns-and that comes from using scorecards that dig into portfolio segments, their data and tendencies, he explained.
"Credit cards are statistics banking," said Hendrickson. "When you talk about unsecured credit-and borrowers you don't know a lot about-it's more about understanding how statistics work within that type of banking relationship. You get into the loss curve per segment and how to price with that. You understand the lifecycle of the account... It's much more powerful."
Hendrickson believes credit unions have an inherent advantage over banks in managing their card base because "they know their members. What many don't understand is what type of underwriting or scorecard to use for them. Capital Services has market-proven scorecards that can accurately identify who is most likely to utilize a financial institution's payment products and as a result, improve portfolio performance."
'Can't Explain Why'
Hendrickson contends that across the credit card space, besides lacking use of scorecards, many banks and credit unions don't truly measure portfolio results. "Therefore when things happen inside the portfolio, the institution can't explain why they occurred. By contrast, with a car loan that goes bad, you can often understand the causes, such as some subjective underwriting decisions."
Measurement begins from day one with an credit card account, insisted Hendrickson. "That is critical. The credit union needs to know what type of loss curve it wants with that type of customer, what type of acquisition cost per account . . . You have to spend time on the bricks and mortar. It's not just plug-and-play, you have to work hard to build a profitable asset."
