In a recent survey, Card Services for Credit Unions (CSCU) asked our member CEOs to indicate the major issues they felt their credit union was facing, with respect to their credit card program. The majority answered “competition”. How can a credit union, with its limited resources, begin to compete with the mammoth banks with marketing expertise and deep pockets? At the CSCU Annual Meeting earlier this year, Gary Raddon, Chairman of the Raddon Financial Group (RFG), a leading financial research and consulting firm, discussed the fact that many sales and consulting firms that solicit credit card sales are telling credit unions that they can not compete effectively and remain profitable in the card market. The truth is that credit cards represent an integral part of a credit union's product line. In his presentation, Gary delivered a very convincing message; with a reasonable amount of resource allocation, credit unions can successfully and profitably compete against the big issuers. Basics Starting with the basics, data from RFG clearly illustrates credit cards, at 3.4%, deliver the highest Return On Assets (ROA) of all earning assets and raise the overall credit union ROA to 1.92%. With all other loan ROAs ranging from a high of 1.57% to a low of -0.08%, imagine what overall credit union ROAs would be without the benefit of credit cards. There are a few key metrics that are critical to measuring a credit card portfolio's performance and growth opportunities: *Active Accounts *Average Outstanding Balance *Usage per Month *Average Sale *Average Cash Advance *Total Annual Revenue per Account A decline in these numbers may indicate that a portfolio is no longer effective or is losing opportunities to the competition. What action can you take if your portfolio is trending in the wrong direction? Research shows that many credit unions should be considering adding a premium (gold or platinum) card to their product mix. Credit unions are consistently finding themselves at a competitive disadvantage by offering only classic cards to their members. In fact, premium cards are proven to perform better on all of the key metrics listed above. Each year, between four and five billion credit card solicitations are mailed out and of that amount, approximately 50% are solicitations for platinum cards. In fact, 42% of all credit cards owned are now platinum. Although Platinum cards are the fastest growing product, according to RFG, of that 42%, only 3% are platinum cards issued by a credit union. Besides the fact that their members are probably already receiving platinum offers from the big banks, for the credit unions themselves, platinum cards will increase profitability on the credit card portfolio as a whole. Based on CSCU portfolio data, Platinum cards outperform Classic cards in nearly every revenue-driving aspect. platinum cards have higher levels of activity, average outstandings, usage, volume, and the most important category, revenue per account. In fact, average platinum card revenue per active account is $395 vs. $195 for Classic cards. Then there is the additional positive impact on loan and deposit balances, plus the usage of other credit union services, that platinum card owners bring to the credit union. Data from RFG indicates that households with platinum cards have the highest loan balances, second highest deposit balances, and have the highest usage of credit union services. Conversely, the data further implies that eliminating credit cards from the overall credit union product offering would ultimately negatively impact loan and deposit balances and usage of services. First, be sure the platinum offer is competitive and compelling enough to accept and become the preferred card in members' wallets. * Pricing – Studies show that no/low annual fees and lower interest rates are the primary reasons people open new card accounts and continue to use a particular card. * Credit Limits – Credit unions tend to have lower credit limits than the big issuers. This may be a challenge for your heavy travelers and transactors that tend to pay off their balance each month. These are also typically your members with the highest household income and deposits, thus are valuable. Credit unions should periodically score/review accounts, increasing credit lines where appropriate. * Enhancement/Loyalty Programs – Many members choose their card based on “what am I getting for using this card”. They use their primary card often and want to be rewarded for it. Be aware that you may see an increase in the number of “transactors” in this segment. Transactors tend to have higher monthly usage but usually pay their balances off each month. The bulk of the revenue generated from these cardholders is from interchange. Once you've put together all of the elements for a competitive offer, be sure to communicate effectively and often to your members. Let them know that they can get all the features and benefits of their favorite card with the new platinum card from their credit union!