Those Not Selling Cards Recognize Reasons Premiums Being Paid
While credit unions are still considering selling off their credit card portfolios, more of them are choosing to reinvest in their card programs and are looking for ways to pump up the portfolio with everything from glow-in-the-dark plastics to risk-based pricing.
"We continue to see some interest in selling off the portfolio, but that is dropping since peaking two years ago," said PSCU Financial Services' Brian Crawford. "The smaller credit unions with smaller portfolios aren't enjoying the growth they'd like to see, and they are realizing it will take a greater investment of resources to make that happen, and so they are the ones who are selling. We don't see that trend going away. But the medium to large credit unions have thought about selling, have taken some offers on their portfolios and gone through the full cycle and have thought, 'Gee, if someone is willing to pay a 20% premium on my card portfolio, then I must have something valuable here.' And that's when they decide to not only keep the card portfolio, but they recommit themselves to it. They come back re-energized."
In Mounds View, Minn., Liberty Card Services' Michelle Thornton agreed. "What we're hearing anecdotally is that the trend of selling the portfolio seems to be slowing," she offered. "As more credit unions go to community charters and there is greater competition, credit unions are looking to differentiate themselves, and they realize that a relationship product like credit cards is one way to do that."
Indeed, as the competitive pressure builds in the marketplace, credit unions aren't simply becoming more aggressive about promoting their card programs-they are looking for innovations in everything from the cosmetics of card design to the mechanics of pricing and managing risk, according to TNB Card Services' Glen Lee.
"A lot of credit unions are looking for answers," Lee suggested. "Instead of just upping their marketing, they are looking for ways to enhance their program."
Here are some of the trends these card experts are seeing:
Risk-Based Pricing. Credit unions have offered different tiers of cards for years, but going to a true risk-based pricing environment is offering a greater flexibility than the traditional three-tiered product line, Lee advised. "For so long credit unions had product-based pricing. But the market has changed, and consumers are getting credit card offers based on their credit worthiness. Three tiers aren't sufficient. They have to offer a competitive price to their low-risk members and evaluate the overall risk of their portfolio. It means that a credit union could have one of its low-risk members in a 'classic' card with a lower rate and a bigger credit line than someone who presents a greater risk who's got a platinum card with a higher interest rate and a smaller credit line. It means more flexibility, and everyone gets what they perceive to be a premium product."
Rewards Are King. "In last year's survey, we saw rewards were the second most important reason a consumer accepted a credit card offer, with the interest rate being the top reason a consumer accepted a card, while rewards were the No. 1 reason for using a particular card," Crawford related. "Now, the rewards program is No. 1 for both selecting which card to use and accepting a card in the first place. Rewards have become the key, with interest rate still a strong, important factor. Fees have simply become a disqualifier."
Stored Value Cards. "There are typically three types of stored value cards-gift cards, payroll cards and the teen market-and what we're hearing is that credit unions are interested in all three," Thornton observed. "If a credit union has an employee-based SEG, the payroll card is really big." For all the interest in stored value cards, however, smart cards still just aren't taking off, she added.
Business Card Accounts. With credit unions showing increasing interest in offering member business services, CUs will have to be looking to offer credit and debit card programs tailored for their business members. "A credit card is a much more efficient method of providing the type of credit lines a business needs," Lee noted. "We have revamped our business debit and credit products to create a true small business product with enhanced reporting and other features small businesses need."
Translucent/Glow-in-the-Dark Cards. "These just look cool, they are eye-catching," Thornton said of some of Liberty's new offerings. While the translucent cards are for credit and debit cards and have a "wow factor" for adults, the glow-in-the-dark plastics are for ATM cards targeting teens.
"Our designers really had a lot of fun designing a card that would both glow in the dark and would still function normally," Thornton related. "It was a challenge because you have to have laminate over the glow, so it's not as bright as some other things that glow in the dark, but it definitely does glow."
Running With The Big Dogs. "We're seeing increased interest in account management tools," said PSCU-FS' Mike Gulledge. "Credit unions are managing these programs tighter. They're using scoring tools to do more segmentation and increasing pricing flexibility, and that helps with retention." Crawford agreed, adding, "The types of underwriting and portfolio management that were routine at the bigger credit card issuers are now getting into the credit union market as well. Credit unions are realizing they have to play the game the way the winners do."
Mini-Cards. There's some debate about the success of mini cards, which must be offered as companions to their traditional wallet-sized brethren, since not all merchants are set up to accept the smaller cards. Seattle-based PEMCO has already rolled out such a card. Lee said TNB has had a few credit unions ask about the product, but when they learn that offering the mini means doubling their plastic cost, most credit unions back off on the idea. Crawford and Gulledge agreed, but Gulledge added, "We want to be ready to provide mini cards if credit unions want it. It's pure marketing. I can see lots of opportunities to market this and have fun with the mini card. Consumers will find them cute and appealing. If you closely evaluate the utility of them, it's questionable. There are a number of situations where the mini simply won't work for you."
While Thornton said mini cards a bit of a fad, she said there is a buzz about the cards. "We do have a lot of clients interested in them, though I don't know how many will actually end up going with it," she commented. "It is a way to differentiate themselves. My guess is, there will be a small pool of credit unions that decide to offer mini cards, and it will be the larger, more aggressive markets. Whether this is going to be the next big craze, I doubt that."
Contactless cards. Although Lee noted that MasterCard is currently testing a "tap and go" card right now, Thornton suggested that it will be a while before true contactless cards are a big part of the plastic arena.
One-Stop Shopping for credit/debit/ATM cards. "Traditionally there's been a split between the ATM and technology side of debit and the signature-based debit, but credit unions are eager to pick just one good provider," Crawford counseled. "Most credit unions are looking for a one-stop shop, and they're asking why that shouldn't also include credit. They want one provider to take the whole relationship."
Family card. Following a beta test with MasterCard and GECU of El Paso, TNB is rolling out a family card program that is based on the old corporate credit card offering that allows a parent to add a teenager, for example, to his existing credit card account.
The teen gets her own card with a credit limit determined by the parent. Statements can be mailed to both the teen and the parent, and as the teen grows and learns how to manage credit, the parents can turn over payment of the card to the teen, Lee explained.
Eventually, the child's card can be "delinked" from the parent's account, and the credit card becomes the full responsibility of the grown child. It gives the parent the ability to monitor and control a child's spending, teaches the child how to handle credit and eventually offers the grown child her own credit card account, and the credit union potentially adds a new lifelong member.