Optimizing your Credit and Debit Card Programs in Today's Economy


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In this 2011 Strategic Growth Conference presentation, yMichael Cebrick, Senior Director, Business Development, Alliance Financial Services walks through the past year's credit economy and in general, what the implications that the Card Act and interchange legislation will mean to the payment card industry. You will also learn about vendor assessments and strategic management options that many credit unions and banks are implementing today to ensure the future success of their payment card programs.

In addition, Bill Kennedy, CFO, Jersey Shore Federal Credit Union discusses his personal experience with a winning strategy for his credit union’s credit and debit card programs.

To hear the full presentation and follow along with the slides visit http://www.nafcu.org/alliance

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Optimizing your Credit and Debit Card Programs in Today's Economy

  1. 1. House of Cards or a Winning Hand? Optimizing your credit and debit card programs in today’s economy Presented by: Michael Cebrick Alliance Financial Services
  2. 2. <ul><li>Introduction : Card industry overview and what your members want from your card programs. </li></ul><ul><li>Part 1 – Post Card Act environment and on-going legislative and economic challenges. </li></ul><ul><li>Part 2 – Exploring options for the future growth of your card programs. </li></ul>Table of Contents
  3. 3. <ul><li>Part 3 – Creating efficiencies and cost savings (Keeping your card programs “In House”). </li></ul><ul><li>Part 4 – Monetizing your card assets (Is an Agent Card program right for you?). </li></ul><ul><li>Part 5 – Case study and open forum with Jersey Shore Federal Credit Union. </li></ul>Table of Contents
  4. 4. Introduction: Card industry overview <ul><li>Today’s cardholders are more interested in card features than in the issuer. </li></ul><ul><ul><li>Rewards </li></ul></ul><ul><ul><li>24/7 membership service </li></ul></ul><ul><ul><li>Competitive pricing / Variable APR offerings </li></ul></ul><ul><ul><li>Balance transfer/cash and purchase promotions </li></ul></ul><ul><ul><li>High credit lines </li></ul></ul><ul><li>Card Industry Saturation </li></ul><ul><ul><li>Top 8 bank issuers have over 90% of the credit card market share. </li></ul></ul><ul><ul><li>Credit unions hold ~ 4% of credit card market share </li></ul></ul>
  5. 5. Introduction: Card industry overview <ul><li>Volatile market conditions persist </li></ul><ul><ul><li>Today’s credit market is turbulent. High unemployment, Legislative restrictions, fraud and delinquency management are challenging. </li></ul></ul><ul><li>Many smaller issuers are partnering with larger agent card issuers to gain a competitive edge. </li></ul><ul><ul><li>Smaller issuers are being pressured by market competition </li></ul></ul><ul><ul><li>Large issuers offer a competitive economy of scale and will pay a premium for growth. </li></ul></ul>
  6. 6. Introduction: What your members want <ul><li>Why credit and debit cards are important to you. </li></ul><ul><li>Credit cards help strengthen the ties between you and your members </li></ul><ul><li>Daily transaction link with your members </li></ul><ul><li>Ability to cross-sell other products and services </li></ul><ul><li>Opportunity for growth and profit </li></ul><ul><li>Credit and debit cards must provide good value to as many of your members as possible. </li></ul><ul><li>Product choices and utility </li></ul><ul><li>Service </li></ul><ul><li>Improve competitive positioning and membership penetration </li></ul>
  7. 7. Part 1: Post Card Act environment <ul><li>Credit Card Act legislation: August 2009: Limitations for issuer's </li></ul><ul><li>No arbitrary interest rate increases on existing card balances </li></ul><ul><li>No over limit fees with out consent of consumer </li></ul><ul><li>Payment allocation restrictions (lowest interest rate payment allocation first). </li></ul><ul><li>Penalty interest rate hike restrictions for minor late payment infractions. </li></ul><ul><li>Plain language disclosures </li></ul><ul><li>Solicitation restrictions to students or consumers under 21 years of age. </li></ul><ul><li>All new legislation works to the advantage of credit unions, but compliance, higher risk and reduced profitability could be a result for all card issuers. </li></ul>
  8. 8. Part 1: Post Card Act environment <ul><li>Dodd-Frank Financial Reform Bill: July 2010 (Threat to our bottom line?) </li></ul><ul><li>Durbin Amendment: July 2010: Reduction of interchange for debit card transactions by 70 to 85%. Cap on interchange proposed at no more than 12 cents per transaction. (currently excludes banks and credit unions below $10 billion in assets, but we all will be effected). </li></ul><ul><li>Interest Rate Reduction Act: Senate bill 582. and H.R bill 1640. Proposal (tabled for now) to limit the APR on all credit cards to a maximum 15%. </li></ul><ul><li>All new legislation works to the advantage of credit unions, but compliance, higher risk and reduced profitability could be a result for all card issuers. </li></ul>
  9. 9. <ul><li>In Summary : Complacency Is Not An Option for Credit Unions! </li></ul><ul><li>Competition is fast-moving, single focused and has far greater resources than many smaller issuers. </li></ul><ul><li>Our best member cardholders will continue to be lured away by the better products and marketing techniques of the competition. </li></ul><ul><li>We face significant uncertainty in the areas of Government legislation, reduction in profitability, credit losses and fraud. </li></ul><ul><li>If not attended to, it will become more difficult to achieve growth and profitability as we compete for future market share. </li></ul>Part 1: Post Card Act environment
  10. 10. <ul><li>Credit unions have a distinct advantage, but need to take an active approach to managing their card portfolio if they want to succeed in today’s volatile lending environment. </li></ul><ul><li>Conduct a comprehensive vendor review of current card processor for efficiencies and cost savings. </li></ul><ul><li>Identify resources needed to improve card performance. Research investment in new card innovations: Picture, Mobile Banking, Contactless cards. </li></ul><ul><li>Implement advanced risk strategies to control delinquency and fraud </li></ul>Part 2: Exploring options for the future success of your card programs.
  11. 11. <ul><li>Enhance card product offerings and pricing: Rewards, promotional pricing and variable APR options. </li></ul><ul><li>Expand cardholder service: 24/7/365 </li></ul><ul><li>Targeted marketing campaigns focused on the Gen Y population </li></ul><ul><li>Maintain profitability while controlling program operating costs </li></ul><ul><li>Review alternative management structures and partnerships for the future success of your card programs. </li></ul>Part 2: Exploring options for the future success of your card programs.
  12. 12. <ul><li>Each year credit unions go through strategic planning for their business lines. Credit and debit card products continue to be profitable, but are becoming more difficult to manage for many credit unions. </li></ul><ul><li>The average loan yield for credit unions is 3 times their investment yield. Creditunions.com </li></ul><ul><li>Credit card revolving balance is down by an ~ 20% and debit card usage has increased by an ~ 30% according to the Federal Reserve from November 2008 through early 2010. </li></ul><ul><li>The National average for credit card APR is 14.72%. Credit unions are on average 20% lower for their market offerings according to creditcards.com and Pew Charitable Trusts. </li></ul>Part 3: Creating efficiencies and cost savings (Keeping your card programs “In House”).
  13. 13. Part 3: Creating efficiencies and cost savings (Keeping your card programs “In House”). 2010 Credit Card Statistics for Credit Unions
  14. 14. <ul><li>Today, many credit unions are exploring alternative card processing options and achieving these benefits. </li></ul><ul><li>Lowering costs of operating your card program </li></ul><ul><li>Reduction of fraud, delinquency and loan loss </li></ul><ul><li>Enhancing operational efficiencies and card technology </li></ul><ul><li>Offering a competitive card product </li></ul><ul><li>Increasing card utilization, member satisfaction and profitability </li></ul>Part 3: Creating efficiencies and cost savings (Keeping your card programs “In House”).
  15. 15. <ul><li>Moral to the story: </li></ul><ul><li>National market trends are working against smaller issuers. In order to maintain a successful payment card program you must consider. </li></ul><ul><li>Developing and executing a growth strategy to maintain success </li></ul><ul><li>Engage in a comprehensive performance review of your current card processing partner. </li></ul><ul><li>Explore the benefits of partnering with an alternative card processor or selling your credit card portfolio to gain a strategic advantage </li></ul>Part 3: Creating efficiencies and cost savings (Keeping your card programs “In House”).
  16. 16. <ul><li>You are not alone: many credit unions are exploring a partnership option in today’s competitive card market. Here are some of the benefits that an agent card partnership can offer for your credit union. </li></ul><ul><li>Elimination of all costs associated with operating the credit card program: (processor fees, loan loss allocation, charge-off, collections, marketing expense, insurance bond on plastics). </li></ul><ul><li>Refocus of internal resources </li></ul><ul><li>Expand cardholder service: (24/7/365 personalized service) </li></ul><ul><li>Robust internet capabilities: (dove tail with your web site) </li></ul>Part 4: Monetizing your credit card program
  17. 17. <ul><li>Agent card partnership benefits continued: </li></ul><ul><li>Enhanced cardholder product options: (multiple rewards choices, competitive pricing promotions, business card option offered at no annual fee or cost to your credit union). </li></ul><ul><li>Improve competitive positioning and strengthen cardholder loyalty: (Picture cards, mobile, contactless cards). </li></ul><ul><li>Your credit union remains in control of your card program </li></ul><ul><li>New card product and partnership is customized for your credit union (your brand and identity is what your members will see). </li></ul><ul><li>Increased revenue: (high premium paid on portfolio and rich ongoing new account and income sharing). </li></ul>Part 4: Monetizing your credit card program
  18. 18. <ul><li>Choosing the wrong agent card partner, that does not have a focus and commitment to credit unions could result in a disastrous partnership. Due diligence is necessary to avoid these events. </li></ul><ul><li>Loss of control over your card program </li></ul><ul><li>Member dissatisfaction </li></ul><ul><li>Member attrition </li></ul><ul><li>Loss of revenue </li></ul><ul><li>Competitive cross-selling of Bank partners products to your members. </li></ul>Part 4: Monetizing your credit card program
  19. 19. <ul><li>“ A credit union isn’t in business to make money, but they’re not here to lose money either.” </li></ul><ul><li>- Mike Lianotti </li></ul><ul><li> General Counsel, NY Credit Union League </li></ul>Part 4: Monetizing your credit card program
  20. 20. <ul><li>Jersey Shore Federal Credit Union </li></ul><ul><li>Northfield, New Jersey </li></ul><ul><li>Bill Kennedy, Chief Financial Officer </li></ul>Part 5: Case study and open forum
  21. 23. Complacency Is Not An Option! <ul><li>Reasons for Exploring Sale of Credit Card Program </li></ul><ul><li>Needed access to more competitive card products (cash rewards) </li></ul><ul><li>Needed to address risk and credit losses </li></ul><ul><li>Reduce plastic and insurance premiums </li></ul><ul><li>Reduce operational expenses including rewards program </li></ul><ul><li>Stale program flat for a number of years yet losses skyrocketed </li></ul>
  22. 24. Complacency Is Not An Option! <ul><li>Questions </li></ul><ul><li>Michael Cebrick </li></ul><ul><li>Managing Director of Business Development </li></ul><ul><li>Alliance Financial Services </li></ul><ul><li>617-578-9400 </li></ul><ul><li>[email_address] </li></ul>www.nafcu.org /alliance