MADISON, Wis. (6/29/12)--A white paper from the CUNA Lending Council, "Back in Business: The Pros and Cons of Re-Launching Credit Card Programs and Other Options to Boost Card Revenue," presents key questions credit unions should consider in deciding whether and how to offer credit cards. It offers several credit union examples.
During the past decade, many credit unions chose to sell their credit card portfolios, primarily to reduce credit and fraud risk, to boost revenue from a premium on the sale and to add liquidity, according to the white paper. But economic times have changed. On the recovery side of a major recession, with the current environment characterized by relatively low demand for loans and tight interest margins, credit unions are revisiting their role in offering credit cards to members, said the paper, written by freelance writer Karen Bankston.
As credit unions weigh their options to either maintain their relationships with other card providers or to launch their own products, they must consider their competitive position, operational and compliance challenges, the potential market among younger "net borrowers," and the costs and return on rewards programs. Careful and comprehensive business planning is a must, the paper advised.
Among the questions Tim Kolk, principal of TRK Advisors and one of the experts interviewed for the paper, advises credit unions to ask themselves is whether they can live with members' expectations. Big card issuers have a reputation for being inflexible in their underwriting and credit limit decisions, and for relying on automated contact centers rather than providing personal service and "hand-holding" for customers who need it. These perceptions, combined with compelling marketing opportunities, provide valid reasons to start issuing again.
On the other hand, credit unions may be labeled as "not quite state of the art" if they cannot offer fully functional remote service options, round-the-clock access to customer support staff, competitive reward programs, or the high-end products that consumers expect.