Success With Plastic Requires Flexible Credit Processing Services

By Patricia Hewitt

Remember when credit card portfolios basically managed themselves, and a credit union could focus solely on its core loan products? Times have changed, and the complacent portfolio manager is a thing of the past. Credit unions with card portfolios recognize a member’s credit card often is the key to unlocking the value of an overall lending relationship.

And while consumers are demanding new and better card products, many credit unions are tied to processing relationships that don’t offer a cost-effective and efficient means of getting new credit card programs to members. “Historically, credit unions have led with the credit card and then marketed their core products to members,” says William Groves, vice president of client services and partner, Bridgeforce Inc., a Newport, Del., business strategy consulting firm.

He says that now, with third-party service processors offering leading-edge credit-processing solutions, it has become more cost-effective for credit unions to regain control of their credit card portfolios and manage them more proactively. Without these third-party service processors developing new products specifically to address this niche market, Groves adds, it wouldn’t make sense for credit unions to do it themselves because the portfolios are so small that the cost of processing them are prohibitive.

Groves says credit unions are showing a renewed interest in credit card portfolios backed by third-party processing services. “Credit unions have decided that if third-parties can run these programs successfully, maybe they should take a hard look and put more effort into their portfolios. Credit unions now recognize this as a critical part of their future.”

With $947 billion in outstanding receivables in the credit card market and $387 billion in outstanding receivables in the private-label card market, according to Groves, it’s no wonder credit unions are taking a fresh look at their portfolios. They realize credit cards are one of their better lead-in products.

For the first time in years, however, credit unions aren’t only looking at their portfolios as gateways to other services but as revenue generators. With the maturing of the credit card market, issuers need to be able to offer new and innovative programs, many of which carry with them additional revenue stream opportunities. The reduction in debit interchange income can be relieved by an increase in credit interchange income. In addition, by efficiently overseeing risk management, credit unions can reduce exposure and set price points for services that more closely match an account’s credit status.

“There are primarily two types of people who use credit cards,” Groves says. “You have transactors and the people who roll the balances, which require a lot of servicing. Just on transactors alone, you can [generate revenue] with the amount of purchasing people put through their cards in today’s environment. The strengthening of the economy, as well as users’ behavioral patterns, have contributed to how credit unions now view their portfolios. Better technology, reduced processing costs, and the ever-increasing use of credit card products have made it more attractive than it was maybe 10 years ago.”

Even if traditional card revenue streams still are marginal, the key is that the cardholder still is the credit union’s member and is eligible to use other products and services.

As the credit union market continues to mature and reach out to emerging markets, such as small businesses, card programs must keep pace. The more time that’s spent managing changes required by a processor means less time spent designing the credit programs that can deliver the top line increases you’re aiming for.

Remember when all your processor had to do was calculate an interest rate and generate a statement on time? Times have changed. Now, credit unions need from their processors the ability to deliver a flexible and contemporary set of card products.

Building and maintaining wallet share involves more personalized interest rates, loyalty programs, compelling card designs, and making members want to use your card product vs. any other. Credit unions need to be able to automatically analyze their portfolios, create credit limit increase programs, and price accounts according to their risk profile.

To take full advantage of the renewed emphasis on managing credit card portfolios, credit unions should consider establishing a strategic relationship with a third-party service processor that can deliver a broad range of services and products backed by extensive partnering experience in this environment. For Fiserv Inc., Brookfield, Wis., which designs solutions especially suited for credit unions, it was a natural direction to expand into credit card processing services.

Having the advantage of building a solution set from a more contemporary market viewpoint has allowed Fiserv to offer The PLUS™ System to this market. Incorporating the main concepts of flexibility and efficiency, The PLUS System allows credit issuers to actively manage their card portfolios without actively managing customized solutions.

Built into The PLUS System is the ability to quickly change interest-rate programs, offer a variety of loyalty programs to a single account, issue attractive card designs, and use portfolio data to automatically analyze accounts for risk and marketing opportunities.

Credit unions face myriad challenges today and need service partners that can change with them. Their card portfolios hold the promise of deepening relationships with members and offering real product value to their marketplace. It couldn’t be a better time to evaluate your card program and make sure it’s all it can be.

Patricia Hewitt manages Strategic Business Alliances at Fiserv Credit Processing Services, Lake Mary, Fla. Contact her at 407-829-7111.