When you open your mailbox each day, how many credit card solicitations do you find? Chances are most days you get at least one-and so do your members. That's why it's vitally important that your members also receive mailings from you, reminding them that their credit union's card is the best deal around and that your card has the flexibility and features they want.
Big banks want your members' credit card accounts, and it takes attention and effort on your part to keep those accounts. With the right attention and effort, you won't just retain and grow current balances; you'll lure accounts from your competitors.
Your credit card program's return on assets (ROA) can far outstrip your other loans' returns-if you treat cards like a core product. By this I mean developing and actively managing the product's strategic plan, dedicating experienced staff to its operations, monitoring and controlling losses, ensuring your product is competitive, and-especially-marketing year-round.
While all of my credit union's loan products perform satisfactorily, our card portfolio-even with some losses-earns an ROA of 6.75%. It's nearly equal to our home equity portfolio's ROA of 7%, and that portfolio hasn't seen any losses. Credit cards represent just 9% of our total loans, but account for 12% of total loan income.
Balance transfer promotions, platinum cards and risk-based lending have helped push our card portfolio to these levels, and my credit union is not unique in this regard. I talked recently with three credit union colleagues who have seen dramatic increases in portfolio profitability through similar strategies.
Significant Results Immediately
With $111 million in assets and 21,000 members, Glass City Federal Credit Union, Maumee, Ohio, has more than 5,600 active credit card accounts, nearly 200 of them new in the last year. In November of 2005, after consulting with its processor, the credit union revamped its card products and then launched a balance transfer promotion. "We saw significant results immediately," reported Melanie Ogrodowski, marketing director. "Our goals were to increase penetration and usage among our existing membership, and to attract new accounts. Increased usage was probably our biggest goal. A lot of members had cards they weren't using-or they weren't carrying balances-probably because our rates were too high."
The credit union began by converting all existing cards to Platinum. "Platinum carries prestige, and research shows Platinum cards are more likely to be at the top of your wallet," added Ogrodowski.
Glass City FCU also implemented risk-based pricing based on credit score. "In the past we set credit limits and interest rates according to the type of card a member had-Classic, Gold or Platinum-regardless of credit score," explained Ogrodowski. "We had members with 800-plus scores paying 14.88% because they had Classic cards. It didn't make sense and it wasn't fair." The CU lowered rates for these cardholders to 8.49% and ran credit reviews upon request for members with lower scores.
All existing accounts included a bonus-points rewards program. The credit union created a second card product without rewards that charged slightly lower risk-based interest rates, and allowed cardholders to request this product if they liked.
To attract new cardholders, Glass City FCU set a six-month introductory rate of 3.99% and solicited balance transfers via direct mail, lobby signage, on its website, in its newsletter, and in card carriers and statement stuffers. "Our frontline staff was our No. 1 marketing tool," says Ogrodowski.
The campaign cost $20,000, and by June 2006, outstanding card balances had increased by $872,000, or 13% over the previous June. "That alone more than paid for the program, without even considering increased usage," says Ogrodowski. Usage was up, too-interchange (per-transaction) income had increased by $37,000, 15% over the previous year.
"Now that we have a program we can promote, we always have a campaign going, in addition to our standard 3.99% introductory-rate offer," Ogrodowski said.
Credit Line Increases Across The board
The $700-million University Federal Credit Union in Austin, Texas, which serves 101,000 members, wanted to increase its outstanding credit card balances by $3 million in 2005. "Our balance transfer goal for the year was $2 million," noted Lee Thorsness, credit card product manager. "Aside from our existing cardholders, we knew the majority of members had around $2,000 to $4,000 in credit card balances with other companies. We might as well have their balances with us."
The CU evaluated results from previous marketing campaigns. "We found that our members were happy with our credit card program, but were-of course-interested in rate reductions."
First, University Federal offered credit-line increases to members across the board so they'd have available credit. Then, said Thorsness, "We offered balance transfer promotions to all of our members in good standing."
The CU's direct mail solicitation garnered a response rate of 2.1%, 1.1% above industry standards, and University Federal promoted the balance transfer offer on its Web site, in branches, and in its newsletter. "We also marketed at credit card fairs and promoted our bonus-points rewards program, among other things. I make sure to run concurrent promotions - that's how you grow a portfolio," Thorsness says.
"We were mostly targeting new cardholders, but the majority of people that did balance transfers already had cards with us," she says. For existing cardholders, the credit union offered a six-month promotional rate at 3% lower than their current University Federal card's rate.
The multi-pronged effort paid off. "We spent about $100 for some reports from our processor, and used 85 staff hours to process balance transfers-and our finance charge income increased about $100,000 per month over the previous year," said Thorsness.
The credit union's outstanding card balances increased by $10,742,321 in 2005, 19% over 2004 levels, and average monthly sales exceeded $11,464,157. The bonus-points promotion netted an additional $30,000 in usage over two months. "Because of the balance-transfer promotion's success we elected to run it again this year," said Thorsness. "From Jan. 1 to June 30 we processed $2,024,787 in balance transfers, and we've already started another go-round."
Platinum with rewards
Alliant Credit Union, Chicago, with $4.3 billion, 200,000 members, launched a Platinum card program with bonus-points rewards in 2004. "One of our strategies was to upgrade non-rewards accounts to Platinum rewards cards, with risk-based pricing based on credit scores. We also wanted to attract new members to the program, increase total balances and increase product usage," said Jennifer Divelbiss, director of marketing and communications.
"Our research showed that the net income from members with our rewards card is five times that of members without the card," she added. "The net income, deposits, and loan balances grew five times higher than when they didn't have rewards cards. I'm not sure if that's entirely due to the rewards card, but it's at least a component."
For existing cardholders, the credit union included a preapproved balance transfer offer as a statement insert. A statement message alerted cardholders to the promotion, which offered free bonus points, tiered according to the balance transfer amounts. "It's relationship pricing-the more business you bring us, the higher the rewards," said Divelbiss. "We also targeted 45,000 non-cardholder members that had active relationships with us. They weren't dormant accounts; we already knew they were interested in doing business with us."
Alliant used direct mail for this promotion. "We've always seen a very strong response," Divelbiss says. "Since our membership base is nationwide, we need to leverage automated channels or direct mail-less than 30% of our membership uses our branches."
The credit union spent $27,800 for printing and $7,800 for mailing the solicitations, and averaged a 4% response rate for the two promotions. Alliant gained 322 balance transfers totaling $1.2 million, and outstanding balances increased by $7 million. Divelbiss credits a combination of factors for the promotion's success-the research her credit union did before structuring the offer, the overall pricing and positioning of the product, and the creative design of the promotional materials.
"We plan to do another rewards campaign in the next month or so," said Divelbiss. "We'll offer balance transfers that honor the promotional rate until the balance is paid off. In the other campaign the rate lasted six months before converting to the lowest standard rate the member could qualify for."
These CUs of varying sizes, membership bases and geographic locations all achieved impressive card portfolio gains in a year's time. Their examples illustrate the power of Platinum, risk-based pricing and balance transfers in battling the big banks that want your credit-worthy cardholders.
Konnie M. Werner is CEO of the $253-million Team One Credit Union in Saginaw, Mich., and board vice chair of Credit Union Card Services.