DALLAS-When it comes to pricing strategies for credit and debit cards, one source said credit unions are definitely open to change.
"Most have always been fixed-rate focused," said Mitch Raymond, VP-product development for TNB Card Services here. "Lately they wondering 'Should I consider variable rate pricing?'
"With the new legislation, should credit cards be turned into variable-rate products," asked Bill Lehman, VP, portfolio consulting services, CSCU, in Clearwater, Fla. "Credit unions may be thinking it's the right time to make that change. We try to talk them a little bit through that."
Lehman noted that a variable rate that is tied to an index and has a margin doesn't help fluctuating risks. "It helps market risk, but doesn't help credit risk," he said. "Variable rates are great when they are high," Lehman added. "But not so great when we get through this economic downslide. I see a lot more credit unions getting to risk-based pricing. Not all credit cards fit into one-size-fits-all concept. So it may be a better option for them to be risk-based. This is more important than variable."
Lehman said that because many credit unions already do this with other lending products, the policies and procedures for risk-based pricing is already in price. "That credit card is probably the highest earning loan product they have," he noted.
Raymond said TNB is also seeing general rate increases for CUs that are generally low-priced. "A couple hundred basis points, some 400," he noted, "but these are ones that were mainly low-priced and had a lot of room to move."
Late-Payment Fees Under Consideration
Other credit unions are looking at increasing late-payment fees, Raymond said. "Some have increased, but not many," he said.
"Most have pulled way from penalty pricing. A lot have decided to not have these at this time. It's really designed to make cards homogenous, based on rates. Cards are becoming much more similar across the board because of the way the new regulations are structuring things."
The Card Act of 2009 has changed card programs, on how they are structures and how financial institutions can charge rates, Raymond said. "This certainly adds complexity to risk-based pricing," he said. "It changes how notices occur."
The Act has raised so many questions that TNB's webinars, which explain the Act and answer questions, has had several hundred clients attend each one, Raymond noted. "The webinars are about the regulation, and what it means to them. What we're doing is taking the complexity out and helping them define the strategies, complexity of their card program."
Have A Vision Of Cards Program
When it comes to making decisions about credit card pricing, "I think the most important thing a credit union can do is determine what their credit card programs means to them. How much are credit card part of their business?" Raymond said. "Then the most important thing is to determine what the want their credit card program to be."
That's where TNB Card Services can help, he said. "We can tell them what their strategic options are for their products. What are their choices?" Raymond said the best piece of advice he can offer credit unions about changing their pricing strategies is to plan ahead.
"Also consider variable-rate cards," he said. "They offer the best security in an inflatable environment. Now is the time if you are going to do it to move the cards to variable. I don't think they can go wrong with that option."
Raymond said that credit unions can have a variable rates and still be "friendly."
Credit unions can be also be softer than other financial institutions when letting members know of the changes. "The first think that makes it softer is what they are already hearing from others-reducing limits, etc.," he said. "People will shop you. Fortunately for credit unions, people want to find better value."
"And my single best advice is understand what your goals are, and plan," he said. "And if you do implement a change, you must communicate internally. Make sure that if a member asks why, the staff person can answer why. Have in-branch training about why you are doing what you are doing."
Jan Dailey, VP, marketing for TNB Card Services agreed. "The frontline staff really need to be trained," she said. "And they need to only know the change, but also believe in it. Credit union offers are still better than most other issuers. It helps staff to really know that."
When it comes to pricing, some credit unions are doing things they would have never dreamed of, such as imposing annual fees on credit cards, and other fees to offset their loan losses, said Caroline Lane, SVP, business development and marketing for CO-OP Financial Services in Rancho Cucamonga, Calif.
New Regs Increase Cost
The new regulations will make credit cards more expensive to administer, Lane noted, but "as much as possible if you can avoid raising fees-given the expense of compliance to regulations-that would be great."
Other credit unions are considering selling their credit card portfolios, something Lane advises against doing. Instead, she advises, offer rewards programs for cards to entice members. "It's a strange time," she said. "If a credit unions wants to stand out, they should offer rewards on debit, and on credit too if they can offer it. This is not the time to be timid. This is a time to gain some market share."
The most important thing CUs can do in Lane's opinion is "to understand what competitors are doing," she said. "You need to understand so you can be as aggressive as possible with pricing."
Another thing to keep in mind about the benefit of cards is that cost of processing an individual check has gone up, but the price of processing debit has gone down, Lane added.
"You need to assess changes and be as razor sharp as possible," she said.
