It’s Time for ‘Carpe Diem’ in the Credit Union Industry

John Pembroke
February 2, 2009 | COMMENTS

By avoiding sub-prime loans and other risky lending practices, credit unions now have a unique opportunity to ‘seize the day' by reaching out to credit-worthy consumers with offerings that build loyalty and expand market share.

Low liquidity and weakening financials are forcing U.S. banks to collectively pull back about $2 trillion in credit lines in 2009. This is a vivid contrast to credit unions, which have an overall capital-to-asset ratio of 11.1 percent—at least two to three times that of most banks. This firm foundation equips credit unions to launch a proactive lending campaign at a time when it is most needed.

Although most credit unions' lending portfolios are concentrated on real estate and auto loans, we believe credit cards offer the best opportunity for three reasons:

• An attractive credit card can woo members and prospects and build loyalty that leads to long-term relationships.
• Credit cards are an excellent way to attract Gen Y and help establish a younger membership to ensure long-term success.
• Credit cards generate significant revenue: pre-tax return on assets income averages about 4 percent.

Even though credit may be tight, consumers need incentives to open a new account and/or put your card at the top of their wallets. Certainly risk is a concern, especially with rising unemployment, but modern management tools can effectively contain risk while building revenue.

Build a Low-Risk Credit Card Program

Here are several easy steps to build a successful, low-risk credit card program:

• Evaluate your credit card offering and upgrade it if needed to meet competitive standards. Credit card offerings must satisfy customer expectations, which include a robust rewards program that includes a cash back option, around-the-clock member support, and attractive interest rates.
• Launch a series of targeted acquisition and activation campaigns. Ongoing campaigns are needed to attract members' attention and win their loyalty. Balance consolidation offers can show results in as little as two months as members take advantage of special low interest offers for balance transfers.

Offering higher limits to qualifying members is also an excellent way to promote greater usage. FICO scores should be updated quarterly so your credit union can both reward high scoring members and limit credit lines for those whose scores are declining. In this volatile economy, annual updates are not enough—quarterly updates are essential.

Special rewards incentives or cash back offers can also attract members and build card loyalty.

Make a special effort to recruit Gen Y with promotions targeted at college students and young adults. These campaigns should drive prospects to a page on the credit union's web site. Posting educational content on the launch page is important, since young adults appreciate knowing how to build a good credit score and how this score is used to determine pricing on financial services. Credit unions may need to expand their portfolio with stylish card designs or user-selected graphics to appeal to this audience. This generation represents decades of borrowing opportunities so it is worth the additional investment.

Consultants can be a valuable asset in designing promotions that target different segments of your membership. They can also educate your staff about current best practices—balanced with real-life experiences about what has—and has not—worked at other institutions.

• Use account level pricing to set interest rates and fees and eliminate manual account reviews. Eliminate manual reviews with automatic account level pricing based on the cardholder's credit score, credit bureau score and delinquency and over limit history. Accounts can be automatically evaluated and re-priced periodically. These time-saving tools enable your existing staff to manage a larger, more active credit card portfolio.
• Mitigate risk with fully featured management tools. Portfolio management technology can track cardholder behavior scores along with delinquency history, credit bureau scores and other account attributes. These tools equip staff members to take appropriate action for accountholders that show increased risk, while rewarding accountholders whose credit-worthiness is improving. Better management of credit line, reissue and collections strategies can reduce risk and boost profitability while simultaneously enhancing member service.

There is a silver lining to the dark economic clouds. Take advantage of this unprecedented opportunity to expand your membership and boost loyalty with an attractive credit card offering. Establishing sticky relationships now could generate long-term revenue gains.

John Pembroke is chief marketing officer for PSCU Financial Services, the largest CUSO in the United States. Contect PSCU at 800-443-7728 or 727-572-7723.