Growing Card Use Bodes Well for CUs
Banks are on the prowl in the card arena, and CUs need to be equally aggressive.
As the economy improves, so does consumers’ willingness to use credit to purchase items and services they have put on hold for the past four or five years.
Consequently, we’re seeing a substantial surge in credit use. Issuers are offering higher credit lines and balances are going up—as is the number of bank marketing programs aimed at extending credit to consumers, including credit union members.
This is happening in consumer spaces such as auto loans, appliances, and other bigger ticket consumer items.
Upward economic trending is certainly being seen, and felt, in credit card use. According to TRK Advisors, consumers charged $53.5 billion in credit card debt in 2012—five times what they charged in 2010.
Credit unions’ credit card loans outstanding grew 5.7% during 2012, up from 3.9% in 2011 and 3.1% in 2010, according to CUNA’s economics and statistics department.
Even with the significant increase in credit card use, TRK Advisors reports that charge-offs are declining and are now less than 3%. Plus, debit and prepaid card purchases grew 14.6% ($177 billion) between 2009 and 2010.
Banks are on the prowl. They’re already marketing new cards, balance transfer offers, and increased credit lines to their best customers. Credit unions need to be in the game just as aggressively.
While a rising tide lifts all ships, credit unions must be proactive and creative in promoting their credit card business or banks may take away potential growth with their heavily advertised programs featuring Vikings and movie stars.
Credit cards are good for business
Although it seems obvious, it’s easy to lose sight of the fact that credit transactions drive both interest and noninterest revenue at credit unions.
How can credit unions capitalize on the growing market for credit cards?
1. Increase credit lines, especially to creditworthy members. Credit cardholders typically keep their use under 30% of their total lines of credit. If a credit union’s credit card doesn’t have an adequate credit limit, members may use another card for major purchases.
2. Accommodate credit-bruised consumers with products such as cards secured by funds in a savings account.
3. Employ cross-marketing to increase card use. If debit and credit cards together make for an attractive primary financial package, promote credit to debit card holders and checking accounts to credit cardholders.
Credit unions can also win business with balance-transfer offers. Responding proactively to current demand and services will help keep a credit union and its credit card business relevant.
4. Build on your strong legacy of service and trust. That’s especially important as consumers recover from the Great Recession.
Although consumers are warming up to credit, they’re also skeptical. Their credit needs—and their credit histories—are different than they were in 2008.
Credit unions have a distinct advantage over banks when it comes to trust and service, but they must stay vigilant by ensuring their policies and procedures do not stray afield. CUNA reports that as consumers became discontented with bank fees and service, coupled with the events of Bank Transfer Day, credit unions stood out in survey after survey.
Credit unions were found to have the most loyal and satisfied members, and they received high marks for providing the most trustworthy financial services and policies. CUNA surveys also note that credit unions outshine banks in consumers’ perceptions of safety and soundness, and were seen as best place for savings and checking accounts.
Building on this strong sense of service and trust is key for credit unions to market any products and services. But now that effort should be focused on credit cards. Credit unions should be knowledgeable about competitors and should inform members about their fair and competitive interest rates and fees.
NEXT: What does the future hold?
What does the future hold?
The horizon is filled with exciting new payment technologies and services that will greatly aid credit card use and growth. The expansion of mobile payment technologies, person-to-person payments, mobile credit card readers, online purchasing, and other developments will drive credit and debit card use in the near future.
Credit unions and their service organizations need to stay on top of these rapidly evolving payment advances. Offering these new technologies can be achieved faster and with less cost by affiliating with a payment technology company that creates these new products for a living.
For instance, CO-OP Financial Services in partnership with The Members Group just launched new two card products that add higher levels of convenience and versatility for card users: Reloadable prepaid cards and MasterPass, a digital service introduced by MasterCard.
The service allows consumers to use any payment card or enabled device to make a purchase and enhance the shopping experience online, in-store, or on any device.
Also beginning to make an impact on credit card use are the mobile credit card readers such as Square and Intuit GoPayment.
Forrester Research predicts that over the next five years, U.S. consumers will make mobile payments at an accelerating rate: $90 billion by the end of 2017, up from $12.8 billion last year.
In 2012, 36% of online consumers with mobile phones said they would be open to making this kind of a payment in a store.
Forrester Research expects that number to increase as consumers become more comfortable with the payment options offered by these and other mobile credit card reader services, including Google and EBay’s PayPal. These services connect with devices, such as smartphones, that are already in people’s pockets.
On the horizon is the EMV card, which promises to change the very nature of credit card use by replacing the traditional magnetic strip with embedded computer chips for authentication.
The major card networks—Visa, MasterCard, and Discover—have all issued guidelines in preparation of card issuers and merchants adopting EMV.
The transition to EMV will be achieved via a series of deadlines over the next few years. The deadlines differ from one card network to another. But stay tuned, because these technology-based, chip-equipped cards, along with the growing popularity of the mobile credit card readers and other payment advances, will be game changers in the credit card industry.
Plan now and be prepared for the new world of financial services technology. If credit unions focus on the right priorities and have in place the systems and procedures to adopt them as the market demands, the industry can grow both credit and debit card use and income well into the future.