In the midst of a growing credit economy, the credit union membership base has grown, and at a much faster pace than the overall credit-active consumer population—a compound annual growth rate (CAGR) of 4% since 2010 versus 1%, respectively.
This fast-paced growth has been observed across all major lending products. For example, from Q1 2010 to Q4 2015, the number of credit union members participating in the card market grew at a 7.1% CAGR, while the number of non-credit union consumers doing so grew at a 2.4% CAGR.
Measuring growth from this perspective alone makes it seem that credit unions are growing their card business faster than the industry, but that is not an entirely accurate conclusion. Here's why:
The card market remains highly concentrated among the top issuers. According to TransUnion data, as of Q4 2015, credit unions represented only about 6% of card balances.
While credit union card originations have grown at a tremendous pace, that pace lags the overall industry.
While all may benefit from a rising tide, clearly credit unions have opportunities to grow their card business. To better understand those opportunities and highlight some best-practice approaches, we researched credit union members' card wallets. Leveraging Q4 2015 data for virtually every credit-active credit union member in TransUnion's U.S. consumer credit database, we segmented members into two categories: those without a credit union card and those with. For the former, we evaluated their "off-us" card performance (naturally), while for the latter we looked at both "on-us" and "off-us" behavior. On-us, in this context, refers to cards issued by a credit union, and off-us refers to non-credit union issued cards.
Segment 1: Inside a member's off-us card wallet
Of the 40.3 million credit union members in our analysis, 15% did not carry a credit card. Another 42% did not have card credit through a credit union but had one or more credit cards issued by a non-credit union lender. The remaining 43% had a credit card with a credit union.
17 million members did not have a credit card with their credit union. That's a gap. Before you start sizing the opportunity for cross-selling a card product to this untapped segment, here's a set of metrics that may inform that decision:
75% of these members have a prime or better credit risk score , which means risk thresholds are most likely sustainable.
Members within the prime and better risk tiers carry 16% higher balances on average than non-member card consumers: $6,400 in outstanding card balances versus $5,500. These members use their credit cards, so capturing those balances on your card product could lead to healthy asset growth.
Importantly, their delinquency is low. In our analysis, only 1.2% of prime cards were seriously delinquent (i.e., 90 or more days past due) within their first two years. And, that percentage was observed at 2.8% for near prime cards. While the levels of delinquency varied as expected across the risk spectrum, they remained low overall, a fact which supports for a sustainable ROA.
While more metrics are needed to design an acquisition strategy, these observations indicate that this segment would be an attractive target for growth.
Segment 2: Inside a member's on-us versus off-us card wallet
43% of the members in our study had both a credit union-issued card and other "off-us" card products in their wallets. Understanding how you compete with off-us cards is critical for portfolio performance measurement. Some interesting findings from our study include:
On average, a member has 1.1 credit union cards and 2.6 off-us cards in his or her wallet. This is consistent across risk tiers. Greater access to credit is important for members who like using cards; and more non-credit union options means it is less likely that the credit union card will be selected for any given transaction.
When it comes to card utilization, credit limits do matter. On average, on-us credit limits did not differ significantly from off-us limits per card. But when we segmented by risk tiers, differences did emerge. Specifically, nonprime members had higher limits on their credit union-issued cards. On average, subprime members had 42% higher limits and near prime members had 25% higher limits on their on-us cards versus their off-us cards. This generally speaks to the relationship underwriting principles prevalent within credit unions—a clearly distinguishing and highly effective competitive factor.
Members utilize their credit union cards at a higher rate, i.e. they carry bigger balances on those cards relative to their limits versus their off-us cards. This is good news from a revenue generating perspective for credit union issuers.
However, despite higher utilization credit unions only captured 40% of their members' overall card balances, simply because members have access to more than twice as many off-us cards. Remember, greater access to credit means members have more choices. While they choose to utilize on-us cards slightly more, they also use off-us cards to meet their overall credit needs.
Most importantly, it is true that credit union members perform better on their on-us cards versus their off-us cards. Our study found that, regardless of the originating risk tier, serious delinquency rates for member on-us cards was roughly half the level of delinquencies on member off-us cards.
So, how do you find these organic opportunities for your portfolio? The first step in any sound strategy is measurement. We recommend you start with a similar analysis of your own portfolio to better understand your members' card wallet and find those segments of your member base that present opportunity. Once you find an economically feasible segment to market to, consider product value proposition, pricing, and credit line optimization as your three big tactics to explore further. Align your card management marketing strategies with your member needs and competition.
But remember, effective growth management always begins and ends with careful and consistent measurement.
Nidhi Verma is director of research and consulting in the Financial Services unit of Chicago-based TransUnion. She can be reached at
