Re-strategizing Credit Card Growth and Risk Amid Economic and Member Behavior Shifts

By: Katie Kean, Principal, Strategic Consulting, Advisors Plus Consulting, PSCU

Shifts in economic and member behavior have forced credit unions to alter their short- and long-term forecasting. PSCU’s Advisors Plus Consulting has identified several focus areas for credit unions as they realign their strategic growth plans to account for the impacts of these shifts.

Adjusting Promotional Strategies, Targeting and Product Enhancements

The pandemic has spurred an upswing in e-commerce, with more consumers spending online – which is accelerating the need for credit unions to keep up in the digital supply chain. This includes enhanced communications and marketing campaigns via digital channels, connecting with members quickly and effectively.

One of the most prevalent promotional trends in the current environment is offering card incentives in merchant spend categories that cardholders are actively using, but may not be the typical incented spend categories on higher transaction-based card product offerings. For example, instead of 2% cash back per dollar spent on travel and entertainment where higher interchange is generated, we are now seeing financial institutions offering 2% cash back per dollar spent at gas stations and grocery stores, simply to stay competitive and remain top of wallet. Staying relevant by meeting member-centric needs and successfully progressing toward aligning short-term growth goals is critical in today’s payments landscape.

Managing Credit Underwriting and Risk

Maintaining strong credit risk management is a topic of utmost importance in current industry discussions. On a daily basis, PSCU’s Advisors Plus team works with credit unions looking to strategically tighten their credit criteria, which may vary by demographics, membership segmentation and overall strategy. Most credit unions are starting to tighten underwriting standards within the FICO credit score tiers. We are also seeing a need to increase the use and frequency of available forecasting tools and resources, such as PSCU’s ScoreSource credit bureau data solution, alternate trend scores and attributes, the upcoming annual FICO resiliency index and even credit union relationship scores. Credit unions should ensure the timing and accuracy of data to underwrite responsibly and the effectiveness of internal procedures for verification of employment/income, ability to pay and the use of work number verification.

As the dust continues to settle in transitioning to remote member service operations, be sure that your credit union is reviewing its Product Control File (PCF) settings and security features. Also, ensure contact center collection teams have remote capabilities where needed and are staffed and prepared to handle increases in cardholder delinquency. Representatives need to have an understanding of cardholder options available to members. In order to provide adequate financial hardship accommodations, tapping into resources to identify delinquency and trends earlier in the process is possible with higher-frequency reporting tools. A credit union’s C-suite should also be communicating clear, transparent expectations in these areas to the Board and credit union stakeholders.

Realigning Credit Growth Expectations

The current economic landscape has mandated realignment of credit card growth expectations and setting realistic, transparent goals with a focus on higher credit quality in the “Super A” and “A” top-tier FICO credit scores. Credit unions should re-evaluate their current promotions and gain competitive advantage by strategically targeting members with highly competitive offers, in order to mitigate adverse selection, as well as solidify activation and usage.

Leveraging Partnerships

Each credit union is experiencing unique challenges and may require different solutions to meet their members’ needs. Now is the time to leverage available resources and partnerships, such as internal and external product or service providers, additional consulting and marketing assistance, and contact center backup support to help tackle specific pain points. This requires not just a review of your tools and solutions, but also the frequency of use and how they’re being used, as well as timely, accurate reporting and analysis, which is critical to maintain fluidity in the strategic management of a credit card portfolio.

In this rapidly changing landscape, proactive communication and planning is at the core of staying agile. While circumstances will continue to shift, tweaking an established game plan along the way is much easier than creating an entirely new strategy when it’s too late. Ensure that your plan works to meet your members’ evolving needs and adjust accordingly to work towards future success.

Katie Kean is a principal director of credit consulting for Advisors Plus. Kean provides credit unions with the critical business intelligence needed to drive portfolio optimization and growth based on insights gained through competitive analysis, industry and peer benchmarking, product set assessments and projecting the impact of new technology. As an accomplished leader with over two decades of experience in financial services, Kean excels at enhancing portfolio profitability and member experience through technological innovation, strategic thinking and deep-dive market analysis.