A paper authored by Card Services for Credit Unions and Callahan & Associates seeks to guide more credit unions into adopting broader array of payment services for their members.
CSCU is the association of credit unions that process their card accounts with Fidelity National Information Systems. Callahan & Associates is a noted CU consultancy.
The paper, “The Payment Revolution: How Payment Strategies Impact Your Credit Union's Future,” describes a gap in payment options offering by the largest and smallest asset credit unions, noting that the nation's 153 credit unions with more than $1 billion in assets as of March 2009, nearly all offer credit cards, checking accounts and bill pay. Mobile banking is offered by one-third of the large credit unions is growing quickly.
For credit unions below $20 million in assets, the statistics are different, the report said. Just over half offer checking accounts, and less than 30% manage a credit card program. Mobile banking among the credit unions below $20 million is rare.
“Increasing convenience for members and building long-term relationships are the dual goals of most payment systems. Understanding the offerings and recognizing opportunities based on your membership will be the foundation of future growth and success,” the report said.
The chief payment methods that the report recommended credit unions adopt were credit cards and debit cards. Not only did credit cards represent 33% of all noncash payments in economic crisis year of 2008, they also haven an importance to CUs beyond that of their balances.
“Credit cards are a key driver of member relationships and one of the fastest growing loan products,” the paper noted. Credit cards have provided credit unions with an ability to help their members meet needs that other financial institutions have retreated from, by keeping CU card programs lending as other issuers canceled cards, hiked interest rates or limited credit lines. Furthermore, the report added, the cards have allowed credit unions a means for cross selling their other loan products.
“For example, Northeast Credit Union [ a $600 million CU in Portsmouth, N.H.] offers a 50 basis point reduction on an auto loan when the member qualifies and takes a credit card,” the report said, adding that Callahan's data showed that those credit unions that have a higher penetration in credit cards also have a higher usage of other credit union products.
“Credit unions with 25% or higher credit card penetration have members using, on average, 2.74 loan and share accounts each. Credit unions with a credit card penetration of less than 10% have members using just 2.08 accounts each on average,” the report said.
The two organizations also sought to put CU concerns over card delinquency into context as well, reporting that CU credit card delinquency even in this recessionary year still dramatically lags where it was a decade ago as proportion of overall CU delinquencies.
But the report also urged credit unions with existing card portfolios to carefully and thoughtfully re-score their card portfolios to reflect members changing risk profiles. The report cited the experience of the SAFE credit union, headquartered in North Highlands, Calif.
With 35,000 accounts, SAFE adopted an approach of using the service bureaus to help develop a targeted approach to re-scoring card accounts that lets it effectively deploy its resources.
“We're not Bank of America. We don't have a huge staff to do this work,” the report quoted SAFE CEO Henry Wirz. “By doing it every two months, we have a bigger list to work on, but it is more efficient.”