ORLANDO, Fla. - There’s a reason credit unions should manage their card portfolios with care and attention: consumers with credit cards from their financial institution not only use more total services on average, but also have higher balances and overall profitability, noted one expert.
In a session during Credit Union Journal’s Grow Show titled “Are You Ignoring the Money,” Tom Chandler, director of strategic portfolio consulting for PSCU Financial Services in St. Petersburg, Fla., said that credit unions have two types of card-users: transactors and revolvers.
“I am a transactor,” Chandler said. “I travel a lot. Everything I can I put on my credit card.”
Transactors have higher incomes, hold greater wealth and transact more than revolvers, Chandler noted. But revolvers’ fee potential can also be a significant contributor to profitability.
When it comes to credit cards, Chandler said that credit unions should ask themselves several questions: Do I know where my risk is? What is my CU’s total unsecured dollar limit per member? What score do I use to underwrite? Are my credit lines competitive? Have I priced appropriately based upon the risk? How often do I refresh my credit scores–and then what do I do with them? How often do I revisit the product and credit line I gave my member? Am I targeting my least risky members? How are my underwriters penalized and rewarded?
“You really need to start thinking how you can give them a $20,000 credit loan, $25,000 or even $40,000,” Chandler said.
“What we see a lot is that credit unions really hate to turn people down,” Chandler said. “They book lower into the FICO bands than many other issuers. So you’re out there taking more risks, but you don’t get penalized for that. You don’t charge-off what the others charge-off. The industry average charge off is 4.85%. At credit unions, it’s 1.79%.”
Chandler said that CUs do not do a good job of credit-line management. “Credit unions are hesitant to extend lines on a competitive basis because they are afraid of that one big charge-off. Credit-line management is the easiest thing to fix and it will give you the biggest bump out of the gate. Line assignment really impacts your financials.”
