As the economy improves, so does consumers’ willingness to use credit to purchase those items and services they have put on hold for the past four or five years. This is happening in consumer spaces such as auto loans, appliances and other bigger ticket items. Consequently, we’re seeing a substantial surge in credit use. Balances are going up, issuers are offering higher credit lines and so is the number of bank marketing programs aimed at extending credit to consumers – including credit union members.
Upward economic trending is certainly being registered, and felt, in credit card usage. According to TRK Advisors, consumers charged $53.5 billion in credit card debt in 2012 – five times what they charged in 2010. Credit union card balances are up 4.6 percent since November 2011, according to CUNA Mutual Group, compared to growth of only 0.4 percent for the rest of the non-CU credit card market. Also on the rise, debit and prepaid card purchases grew by 14.6% ($177 billion) between 2009 and 2010.
With this increasing level of credit card activity, banks are on the prowl. They are already marketing new cards, balance transfer offers and increased credit lines to their best customers. 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 your potential growth with their heavily advertised programs featuring Vikings and movie stars. If you aren’t in the credit game aggressively, you’re not going to win.
Credit Cards Are Good for Business
Although it seems obvious, it’s easy to lose sight of this: Credit transactions drive both interest and non-interest revenue at credit unions. A new survey by FinancialBrand.com of bank and credit union executives underscores the importance of credit cards for future growth of both industries. Credit cards were number five on the priority list behind auto loans, mortgages and home equity lines of credit. Number one on the list was utilizing mobile banking solutions to increase lending activity. However, when properly managed, credit cards can be the most profitable lending product a credit union can provide.
How can credit unions capitalize on the growing market for credit cards?
First, increase credit lines, especially to creditworthy members. Credit cardholders typically keep their usage under 30 percent of their total lines of credit. If the credit card you provide doesn’t have an adequate credit limit, your member may choose to use another card for their major purchases.
Second, a viable method is to add products that address credit-bruised consumers such as credit cards that are secured by funds in a credit union savings account.
Third, cross-marketing is also an effective way to increase card usage by your members. 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. And if you have great credit card programs, you can win business with balance transfer offers. Responding proactively to current demand and services keeps your credit union and its credit card business relevant.
Fourth, building on credit unions’ strong legacy of service and trust is a key for credit unions to market any products and services, but that is especially so when it comes to credit card business. Be knowledgeable about the competition and be sure to inform members about your fair and competitive interest rates and fees. We have a positive story to tell members – be their credit ally.
Looking ahead, the horizon is filled with exciting new payment technologies, products and services that will greatly benefit credit card use and its growth. The expansion of mobile payment technologies, P2P payments, mobile credit card readers and online purchasing, to name a few, are set to drive credit and debit card usage in the near future.
The future is bright but credit unions must plan now and be prepared for the new world of financial services technology and certainly credit cards are at the top of the list. If we in the credit union industry focus on the right priorities and have in place the systems and procedures to adopt advances, we can continue to provide a valuable credit payment vehicle that will build credit card usage and income as the market demand grows well into the future.
Jennifer Kerry is Vice President, Credit Issuer Processing, for CO-OP Financial Services, Rancho Cucamonga, Calif. She can be reached at firstname.lastname@example.org and (800) 782-90432, ext. 7022.