Opportunity Exists to Manage a Strong Credit Card Portfolio

Sara Wolfe, CreditUnions.com
November 8, 2004

While credit unions may be concerned with both the decline in members holding credit cards and increased competition, credit card portfolios still have the ability to be a strong product for credit unions.

Effective credit card portfolio management will become more essential now that Check 21 has become law. Check 21 makes it possible for financial institutions to streamline their traditional check-clearing systems using electronic technology and eliminate float time, an appealing factor for many consumers.

Float time delays the need for the member to have the necessary funds until the check clears. Eliminating this benefit will cause the popularity of this payment system to decline, and other types of payments, including credit cards, will see increases in usage.

This increase in credit card usage provides an opportunity for credit unions to attract new credit card holders.

Additionally, although the number of members holding credit cards is decreasing, their balances are not. Last year alone, the average balance increased by 4.7%. There is a clear trend of increasing credit card balances, which will help propel credit-card portfolios.

Though there is potential for expansion, successful credit card portfolio management requires aggressive strategies. With so many credit card options available to consumers, credit unions must be proactive in both attracting new and maintaining existing cardholders.

BECU, a $4.8-billion credit union in Washington, has a very active and successful credit card portfolio. The credit union has an aggressive risk-based lending strategy that focuses on member solutions. According to Joe Brancucci, vice president of lending at BECU, this strategy has enabled the credit card portfolio to be BECU’s most profitable product.

“If managed properly [the credit card portfolio] will become a core product,” says Brancucci. Anheuser-Busch is another example of a credit union actively managing its credit card portfolio and seeing great success. According to a case study by AssetExchange, CEO David Osborn estimates that the credit union spent at least $35,000 in an aggressive credit card marketing program last year.

Osborn feels that growing a portfolio through new account acquisition is becoming more challenging and expensive for credit unions. However, the investment was well worth it, as Anheuser-Busch has seen an 11% increase in the dollar amount of outstanding credit card loans in the past year. This well exceeds the national industry average of 2.6%.

Sara Wolfe is a corporate associate with Callahan & Associates. This story is reprinted with permission from www.creditunions.com. For more information, or to learn about Callahan & Associates’ upcoming webinar on credit card program management on November 10, contact Wolfe at SWolfe@creditunions.com.