The current market environment has many senior leaders examining card loan assets more closely. Factors heightening these concerns include:
- Higher funding costs – slowing or negative deposit growth rates
- Higher credit costs – full implementation of CECL (additional loss provisioning)
- Higher risk profiles – rising delinquencies and loss across the card industry
These challenges can burden profitability requiring senior leaders to provide additional oversight to effectively manage risk, expense, and efficiently manage capital.
On top of these challenges, inflation and the uncertain economy may cause cardmembers to pull back on spending, reducing efficiencies and profitability for issuers.
Have you considered evaluating strategic options to help navigate the market environment? Below are the three steps to begin an evaluation:
Step 1: Gather data.
What financial return is the card program generating? Think through funding, pricing, credit, and operating costs impacted by inflated rates. Operational costs are probably the most complex asset on your balance sheet including everything from third-party vendor costs and dispute management to employees training, marketing, and plastics.
Step 2: Analyze your credit card portfolio’s sensitivity to future risks.
Consider credit profiles, revolve and payment rates, and how card portfolio balances are priced by annual percentage rate (APR). What options will be available to manage these risks? In addition, evaluate vendor contracts for increasing costs based on your results. Can you provide a competitive card program to members, without impacting the card program’s profitability, over the next 5-10 years?
Step 3: Consider your options.
In-house management: A high level of control, with a high level of cost and risk. Look at cards in market today. Can you compete with these offers? Would it be profitable?
Outsourcing solution: You will lose some control. However, the partner you choose will deliver higher-value products, deeper underwriting, and better cardmember technology. The funding of the overall card program and for ongoing investments is covered by the partner, providing a low-risk, fee-income stream.
Considering an outsourcing partner ensures members continue to have the best products and technology in an uncertain environment — without the risk for your credit union.
Learn what to look for when reviewing your credit card program in this webinar recap or feel free to contact us for a card program analysis.
