Credit Cards Poised for Growth for Credit Unions

If credit unions were waiting for a good time to ramp up promoting their credit and debit cards, one payments CUSO said that time would be now.

CO-OP Financial Services, based in Rancho Cucamonga, Calif., said its data shows credit union member spending has rebounded in all categories other than travel, in-person dining and entertainment.

“For credit unions, this is a strong signal that now is the time to aggressively promote their credit and debit card offerings in order to capture a greater share of interchange revenue and members’ lifestyle interactions as spending continues to improve,” according to a report released Thursday.

“While economic uncertainty might tempt credit unions to be more conservative in their card acquisition and marketing efforts, we would recommend the opposite,” it said.

The dollar volume of spending on credit cards was generally higher in January on credit cards and debit cards than it was in January 2019, two months before COVID-19 was declared a pandemic.

• For Amazon and other online bookstores, spending was up 43% by credit cards and 46% by debit cards.
• For grocery stores, spending was up 27% by credit cards and 8% by debit cards.
• For department stores, spending was up 35% by credit cards and down 6% by debit cards.
• For hardware stores, spending was up 44% by credit cards and 39% by debit cards.
• For wholesale clubs, spending was up 32% by credit cards and 42% by debit cards.
• For restaurants, spending was down 9% by credit and down 27% by debit.
• For air travel, spending was down 71% by credit and down 79% by debit.

Despite the increases in spending in most areas, credit card balances were down compared to 2019.

The Fed’s G-19 Consumer Credit Report showed credit union members held $62.6 billion in credit card debt as of Dec. 31, down 7.6% from a year earlier. Banks held $874.8 billion in credit card debt, down 11%.

Balances fell steeply in April and May and have remained low as consumers are tending to pay off a higher proportion of their balances each month than in recent years.

The CO-OP report said the trend reflects members discomfort carrying high credit balances during periods of economic uncertainty.

“If they have the ability, they will reduce their revolving debt balances to gain some wiggle room for navigating the emerging crisis,” the report said.

Beth Phillips, CO-OP’s director of strategic portfolio growth, said credit unions should be watching their utilization rates for their credit cards to maximize interchange income earned on credit transaction activity to offset losses in net interest income as balances fall.

“Economic uncertainty tends to lead to lower utilization rates,” Phillips said. “In the first few months of the 2008 Recession, borrowers reduced their credit utilization by 4%. When we look at the first few months of COVID-19, Americans reduced their average utilization by an eye-popping 13%. This trend is likely to continue as long as economic uncertainty lingers.”

Phillips offered two strategies to increase card use.

One was making proactive credit line increases “to effectively boost member loyalty as well as a credit union’s payment portfolio.” To balance increased risk of delinquency from line increases, credit unions might want to consider tighter lending qualifications in accordance with their underwriting standards.

“It is natural for cardholders to stop using their credit card when utilization rates reach 35-40% of their available line,” John Patton, CO-OP senior payments advisor, said. “At that point, they will typically switch their usage to another card in their wallet.”

Another strategy is to look for new card holders among current members. Using their trove of behavioral, balance and transactional data, credit unions can provide incentives to members with strong deposit accounts and payment activity to acquire their credit cards, the report said.