A colleague of mine received a credit card offer from National Institutes of Health Federal Credit Union ($380M in Rockville, MD) in the mail yesterday. On the back of the offer, instead of putting terms and conditions, NIHFCU offers a chart comparing their credit card terms to the standard terms of popular credit cards, encouraging members to compare the value. By physically writing in their own existing interest rates and fees, members have a sensory allusion to the value of the credit union's credit card. The letter encourages its members, "You'll quickly see how having an NIHFCU card is smart credit management".
NIHFCU uses the marketing for the credit card to emphasize the financial education and budgeting aspect of the product. The underlying message indicates that the institution cares about your financial health. In a recent survey of over 10,000 credit union members through the Internet Strategy Consortium, 60% of members carry a balance each month. The good news: only 8% of members surveyed make the minimum payment each month. Of the rest half make minimum payments on all cards but pay extra on other cards and the other half completely pay off one or more cards but carry balances on remaining cards.
Source: Survey of 10,000+ members, Internet Strategy Consortium | 800-446-7453
In the first quarter, credit card balances continued double-digit growth, totaling $30.2B in March, an increase of 14.5% over the past 12 months. Credit cards now account for 5.6% of the total loan portfolio, an increase of 40 basis points since first quarter 2007. Outstanding balances grew at a rate that exceeded the growth in the number of accounts. Net new credit card accounts increased 1.5% to 12.6M. The discrepancy in growth indicates that cardholders are increasing charges to their cards or not aggressively paying down balances. However, these dynamics had little impact on the quality of the portfolio through March. Total credit card delinquencies increased slightly to 1.35% from 1.34% last quarter.
Declining Rate Environment
The current economic environment is affecting the credit card market in a unique way. With a declining rate environment and increasing concerns about asset quality, credit unions have an opportunity to demonstrate the value of their credit card. Indexcreditcards.com, a consumer-focused site, tracks over 1,200 credit cards, including roughly 30 credit union issued credit cards. From their survey, average credit card interest rates have fallen to 12.3% in June. As a result credit unions experience increasing competition for prime customers who are rate shopping. Credit unions that have at least one outstanding credit card offered an average rate of 11.2% at March 31, 2008, declining only 11 basis points since last year at the same time.
However, with concerns about asset quality and maximizing profit, Citigroup, Inc. is considering reinstating its policy of "any time, for any reason" interest rate increases. In early 2007, Citigroup had suspended that practice, delineating universal default rate increases and rate increases "any time, for any reason". Policies such as universals default rates and double-cycle billing, which most credit unions do not use, can change the competition from rates to value. According to Indexcreditcards.com, the average credit card late fee now tops $35 and over the limit fees average $36.
In the current environment, credit unions can make changes in management and marketing to enhance member value while developing the portfolio into a mature product within the credit union's loan portfolio. Join us on July 30th as we explore credit union best practices in the credit card portfolio.