How To Build A Successful Card Program

Five steps that separate the top performers and earners from the also-rans.

Across the country credit union leaders echo one another in voicing how difficult it is to find quality loan volume that can generate a reasonable yield. The credit card and payments market presents abundant opportunity to do exactly that. And so do the more focused and able credit unions. For example, did you know:

  • Over the past five years, credit unions grew their credit card market share by 50% while bank market share shrank.
  • The interest rate on credit cards has not come down from pre-recession levels even as other loan product yields are down 30-50%.
  • Credit risk and charge-off rates are at more than 20-year lows.
  • Margin and ROA are at historic highs and a performing card program can often generate three to four times more income dollar-for-dollar than other loan products.

It is important for credit unions to make the most of this window of opportunity before conditions change. Certainly the big banks recognize the attractive opportunity before them, having returned to the market in force after taking a break from aggressive new account marketing during the recession.

But translating opportunity into strategy and strategy into action can be a challenge, particularly for those who tend to view credit cards from an operational perspective. Getting bogged down in technical matters, EMV concerns, mobile wallet turbulence, or any host of day-to-day distractions is easy. But the truly successful issuers are able to lift their eyes toward the horizon and continuously develop the skills needed to keep a program growing and performing year-over-year. Critically, the skills needed to keep a card program performing continue to evolve, and counting on third-party processing organizations to think for you is a recipe for dissatisfaction.

So, what does a credit union issuer need to understand and improve upon to position its credit card program for the next few years? The following five steps, for starters, will separate the top performers and earners from the also-rans.

  1. Understand the entire market. Too often issuers look at their own book of accounts and the few other issuers based in their area and base their plans on that narrow perspective. But cards exist in a national market, where large banks issue nine out of 10 cards. Large banks are the competition against which credit unions position their products. Credit unions must know what large banks are up to, be aware of changes in the regulatory environment, and monitor overall economic patterns to proactively manage their credit card product.
  2. Keep the product set fresh. Most serious credit unions have realized the old Classic/Gold/Platinum product set construct is a relic of the past, but even so, many modern programs are at risk of falling behind market expectations on rate options, special promotional programs, targeted loyalty and reward propositions, and service delivery technology. Designing a card product is not a once-every-five-years project; it is a process of continuous analysis and refinement that often occurs behind the scenes from the average cardholder’s understanding.
  3. Segment your membership. The termcredit card means different things to different segments of your membership. For some it is a product to which they aspire but cannot yet qualify, for others it is a source of regular or occasional credit, and for still others it is a transactional tool valued for convenience and rewards. Until an issuer develops a segmentation approach based on member viewpoints, matching product value and member expectations is guesswork that runs the risk being just plain wrong. This means not only less growth and less income but also increased risk that members will not be as satisfied with the credit union as they could be.
  4. Build the skills; use the skills. When a credit card program struggles, it is common that the organization has invested little in the skills required to run the program. Often, day-to-day responsibilities fall to an operational function, whereas medium and long-term planning require a more strategic view. But the people setting strategy have little understanding of the product or marketplace for it. Further, the strategic view has to be supported by strong analytic skills or all tactics will be just guesswork. Building these skills requires management support and investments. Most issuers the size of credit unions won’t find a perfectly experienced and skilled card manager on the street corner, but they can develop such a manager from promising internal staff.
  5. Prove, advocate, resource. Even the best-run card programs need to sell their performance to internal management teams, colleagues, and boards. Card programs require a regular stream of marketing and program management resources to meet their potential. An organization with the above skills needs to translate program performance into information for these constituencies so they understand the program’s value, share in its success, advocate for the program, and confidently provide the resources to keep the program building into future years.

Unlike other loan products, a successful card program does not have a date when it will run off. Existing accounts can stay on the books for decades, generating income the whole time while maintaining another product within the overall member relationship. Many organizations have trouble understanding how an often-smaller program like credit cards can in fact be its highest earning product and have the most long-term value to the organization. But those who figure this out and continually support and invest in their card programs truly are strategic, long-term thinkers doing the best by their members and the credit union.

November 11, 2013

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