DES MOINES, Iowa—With rates expected to eventually rise and credit unions making greater use of data analytics, TMG expects CUs next year will pay much more attention to managing the credit card portfolio.
“We expect to see more credit unions take a strategic approach to credit card portfolio management in 2017,” said Jennifer Davis, vice president of SmartGrowth at TMG. “A couple of trends will drive more intentional changes or enhancements to the credit card program.”
Davis said that as more credit unions are getting a handle on business intelligence, they are in a better position than even a year ago to both gather and analyze the data points necessary for informed decision-making.
“Second, portfolio management is the only real way to truly optimize the risk vs. revenue equation,” she said. “With interest rates expected to rise, leadership has to keep an eye on the pricing of ongoing, revolving lines of credit.”
Challenges Ahead
What is coming is a much more challenging and competitive credit card marketplace, said Davis.
“Very soon, if they haven’t already, credit card issuers of all stripes will begin to plan for how they will adjust if rates raise 25 basis points, 50 basis points, or more,” said Davis. “Because the CARD Act restricts the ability to make rate adjustments, it’s important to think ahead to build out appropriate timelines. It takes time, often years, to achieve target yield from pricing changes.”
Jennifer Davis
Credit unions will also be looking at credit line management activities, such as initial underwriting and line assignment, ongoing account management and collection efforts, and establishing a process for recurring reviews of credit lines based on cardholder-level data from multiple sources, Davis said.
“Beyond managing risk, data-driven line management maintains an issuer’s relevancy with the cardholder. Offering members personalized lines of credit encourages loyalty and stimulates engagement,” Davis said.
Davis explained that one TMG client recently experienced measurable improvement with a credit line increase campaign.
“After segmenting the portfolio and offering a range of line increases to different cardholders, the credit union saw average balances increase anywhere from 3% to 78% depending on the cardholder segment,” Davis said. “Using the lessons learned from this campaign, the credit union adjusts its next set of line increases to produce even more personalized offers for cardholders and better outcomes for the CU.”
Clear Value Propositions
Today, competitive credit lines are core to consumer front-of-wallet behavior, pointed out Davis.
“As that desired positioning evolves to front-of-digital-wallet, credit unions will have to provide incredibly clear value propositions to a generation of consumers using credit cards in entirely new ways. Strategic portfolio management can help them get there,” she said.