By: Barney Moore, Principal, Advisors Plus
“Although credit cards dominated the U.S. market for decades, it’s clear that a seismic shift has started taking place, and they will likely become obsolete in a generation or two.” That is a direct quote from Hiroki Takeuchi, co-founder and CEO of GoCardless, in a recent article published by Tearsheet. We are hearing similar musings from others in the industry. While there is no argument about the increasing availability and popularity of alternative payments options such as Buy Now, Pay Later (BNPL), and that for many consumers, debit is the payment method of choice, the downfall of credit cards is grossly exaggerated.
Credit Card Growth Languished During Early Pandemic
Certainly, credit card growth – in terms of accounts, spend and balances – struggled, particularly during the early pandemic environment. According to the Fed’s monthly report on consumer credit (the G.19) in September, total revolving debt had declined by 12.4% at the end of July 2021 since its December 2019 peak. Benefiting from issuer accommodations, government stimulus programs, a ban on evictions and suspension of student loan obligations, among other factors, consumers have been paying down their credit card debt since the pandemic first took hold.
Due to shutdowns and general fears about being in public spaces, in-person shopping activity came to a near standstill. While recovering to a large degree in many sectors, some areas of consumer spend continue to lag their pre-pandemic levels, particularly travel and entertainment, where credit cards are a significant form of payment. In addition, while resuming recently, issuers severely curtailed their new account acquisition programs, and large national issuers in particular lowered credit lines on new and existing accounts.
A Valuable Asset to Your Credit Union and Your Members
I am sure that many of you have heard from us at PSCU and Advisors Plus that credit cards are the highest-performing asset on your balance sheet. Properly managed, credit card programs have an outsized impact to your earnings, consistently providing a return on assets (ROA) three to five times higher than the overall credit union ROA. While growth in the past two years has been challenging, this remains true.
Moreover, like debit cards, credit cards are one of the most visible and regularly reinforced representations of your credit union’s brand, strengthening the value and presence of your brand with every swipe, insertion or tap. Credit cards are great relationship products and are an integral part of your comprehensive product suite. They also enable the credit union to pursue and capitalize on affinity relationships with partner companies, associations, universities and other organizations.
Your members derive great value from credit cards. While Gen Z and millennial generations express a preference for debit, credit cards are a great way for them to build credit and enable them with greater buying power as they progress through the buying stages of their lives. The credit history they develop using your card positions them for future larger purchases like furniture, electronics, cars, travel, homes and business needs. For more established members, they provide an ongoing spending vehicle and source of credit as the need arises. Additionally, credit card reward programs provide an explicit enhanced value proposition unmatched by any of your other product offerings.
Credit Union Card Programs are Well-Positioned to Thrive
In a recent press release, JD Power states that “increased financial stress, lack of responsiveness and misaligned terms and rewards have created a recipe for declining customer satisfaction with credit card issuers.” Interestingly, their study includes only one credit union. And despite its size, that credit union, Navy Federal, received the highest rating of all the national and mid-size issuers listed. Many of the issues cited by the study as sources of discontent are areas that credit unions have the ability to tackle head-on, including shrinking credit limits, consumers with the wrong product, rewards program dissatisfaction, fintechs raising the bar on user experience and payment options.
Broadly, credit unions already provide favorable pricing and terms on their credit cards. Ensuring that they are also providing competitive new account enticements, credit limits and valuable and flexible reward propositions will be crucial to future growth and member satisfaction. Emphasis on the member experience through continued innovations will be key. For example, the ability to augment the flexibility of credit cards with the addition of BNPL functionality, like what PSCU is developing, will serve to heighten the value and relevance of your credit card products to your members.
The months and years ahead represent a time rich with opportunity, as opposed to a period of decline. Providing a robust credit card product set with competitive, relevant features and functionality will continue to drive value for your organization and your membership.
Barney Moore is a Principal Consultant with the Credit Card practice at PSCU’s Advisors Plus. Barney advises credit unions on ways to enhance portfolio growth and profitability through P & L and key metric performance analyses, competitive product assessments, and industry and peer benchmarking reviews.