Credit Cards: Learn From the Best-Run Programs

This is the “year of credit,” says analyst Ondine Irving, as more consumers obtain credit cards and credit union credit card loans outstanding continue to increase.

More than 53% of credit unions offer credit cards, and credit unions’ overall card portfolios grew 0.6% during May, according to CUNA’s economics and statistics department.

Credit unions can improve their card programs with more efficient operations and marketing, and by avoiding some common mistakes, says Irving, owner and founder of Card Analysis Solutions.

She cites these mistakes include having:

• Too many card programs;
• Low and outdated fee structures;
• Credit union employees who don’t use the card; this makes it more difficult to sell to members;
• Over-reactions to delinquencies and charge-offs; and
• A weak website presence, making it hard to find credit card information.

What the best-run credit card programs have in common, Irving says, are a commitment from management, fair and ethical program structures, a product champion, a willingness to take risks, and ongoing member education.

“Make sure your card program is not an orphan,” Irving says. “Determine who has responsibility. The characteristics of a good card-product owner include someone who is part operational management and part analytical management.”

She says credit card programs should have these features:

• A platinum offering;
• At least one fixed-rate card;
• Risk-based pricing;
• No balance-transfer fees;
• No penalty pricing;
• Late fee of no more than $25;
• No annual fee; and
• Optional rewards.

Credit unions should strive to earn an average of $75 to $100 annual net income per account, Irving says, and expect credit cards loans to account for at least 10% of the overall loan portfolio. Some other benchmarks:

• 65% of accounts should be active;
• The average credit line should be at least $7,500; and
• Charge-offs should be less than a 2%.

The mix of credit card revenue should be 70% from finance charges, 15% from interchange income, and 15% from fee income, she adds.

Irving advises credit unions to conduct a fee audit because many miss out on late fees. However, credit unions should verify the late-fee grace period with their processor to make sure system parameters reflect disclosure information.

Another tip for success: Give all new members a credit card as part of their membership, Irving suggests. “They shouldn’t have to ask for one.”

Irving addressed the America’s Credit Union Conference in San Diego. Next year, this conference will be held in New York City June 30 to July 3.