The Odd Effects Of Phones Upon Credit Unions

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Sometimes knowing your members well has a downside. If you didn't hear it, National Public Radio did a report with some of the victims of the recent landslides in Southern California. Among them was one woman who had just lost her home. She shared with the radio audience that the first call she received was from her credit union. At that point it sounded like a touching display of the people-helping-people philosophy of the credit union movement. That is until she added that the credit union had called to tell her she could no longer access her home equity line of credit. Ouch.

Each year the publisher of The Credit Union Journal, SourceMedia, hosts a conference in New York for many of the suppliers and companies serving both banks and credit unions with which SourceMedia also does business. During the meeting presentations are made by many of the editors of sister publications to The Credit Union Journal, each experts within their own discipline. While my own remarks would seem rather obvious to most within the credit union community, the one point relative to credit unions that I will share is how I am struck each year by the number of well-known brand companies that know very, very little about credit unions.

And frankly, I'm also struck by how very, very much there is to be learned by getting out of one's own field and listening, in this case, to what's being seen by the editors of those other publications. Case in point was some of the remarks offered by Don Davis, editor of Chicago-based Cards & Payments, which covers, well, you figure it out.

Here is some of the information and observations shared by Mr. Davis:

* "The credit card industry remains an amazingly profitable industry," he observed. "Visa and MasterCard issuers earned $21.4 billion in 2004, up 51% from $14.2 billion in 2003. Consumers are spending more with crdit cards than ever before."

This is interesting when you consider how many credit unions have sold their card portfolios because they are not a core competency and aren't profitable. And it should also make clear that those aren't business school drop-outs who are always knocking on the credit union's door and looking to buy the portfolio. Those are savvy buyers who know what they're doing and who have seen the numbers above.

Those acquisitions mean that today the top 10 credit card issuers hold 85% of receivables, up from 68% in 1996.

Mr. Davis had some other numbers, too.

* "Receiveables were up just 3% last year, versus 15% (growth) in 2000," he said. "Nonrevolving loans are up 28% in 2004 over 2000. There's been 7.5% growth in revolving credit, and the reason is more people are moving into home equity lines of credit."

* If you're among the select few people in the United States who have a mailbox the you know the best way to check your credit is to measure the credit card pitches you're receiving. The problem, as every credit union marketer knows, is that most consumers are more likely to open a letter from the Internal Revenue Service than they are a card solicitation. And Davis said the statistics show what those marketers know. "There's an 0.4% response to direct mail," he related. "That's down from 0.7% in 2002." That means you send 1,000 pieces of mail, four members respond. You've got as good a shot picking cars at random in the drive-through. Probably better.

For some, of course, there's a downside to all that charge-now, figure out how to pay later consumerism. And credit unions, of course, are well versed in that. Davis noted that consumer debt is up 110% over the past decade (excluding mortgages), while income is up just 65%. Not surprisingly, bankruptcies have doubled.

"There are some opportunities for new credit scoring models for consumers who don't qualify for chapter seven (banktruptcy)," predicted Davis.

? Some other numbers from Davis with which credit unions are also familiar: while the income of the bottom 20% of the population is up 3%, the top 20% of the population is up by 53%, and the top 5% has grown by 81%.

What lies ahead in plastic? In some regards, no plastic. Davis predicted the next wave will be a wave, the contactless cards that are just waved by a payment reader. In one test in Orlando, Davis said spending on contactless cards was 28% higher than on standard, mag-stripe cards. In some cases, he noted, there is no need to even remove the card from a wallet or pocketbook.

In China and other parts of Asia, the fastest emerging payments mechanism is the cellphone, which is used much like a contactless credit card and can similarly be waved over a reader to make a purchase. (Those phones have fingertip sensors to ensure leaving your phone behind in a taxi doesn't mean the person who found it can do a lot more than just make calls at your expense.)

Now, if there were just a way to use those same cellphones to call members after a disaster with a message that does more to help than hurt.

Frank J. Diekmann is Editor of The Credit Union Journal.

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