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Every credit card portfolio in the movement will be tested this year. Intense competition for cardholder business, changing consumer preferences and on-the-move interest rates are just a few of the trends already presenting cards teams with tough challenges, yet also unprecedented opportunity.
To position themselves for success in the evolving world of credit card issuance, savvy credit unions are looking more closely at cardholder data. Coupled with skillful analytics, data from a variety of internal and external sources allows cards managers to make quick decisions with confidence. The result is an intuitive program, one that adjusts to offer customized features, benefits and perks—often before members even know they want them.
Take credit lines, for example. Cardholders rarely consider asking their issuer to change what many of them perceive to be set-in-stone limits. Yet, when presented with even a modestly increased credit line, cardholder appreciation for the benefit becomes apparent.
This is particularly true among credit union cardholders. That’s because cooperatives are very often on the extreme end of conservatism when it comes to extending credit. Not only does this conservatism leave worthy borrowers completely off the credit union radar; it opens the door for aggressive competitors and financial technology lenders to begin courting a credit union’s members.
Seeing precisely that writing on the wall, the credit card team at $3.2 billion University of Iowa Community Credit Union, N. Liberty, Iowa, knew it had to make an aggressive move to continue offering members a valuable product. After engaging IQR Consulting through its relationship with card processor TMG, a CUES Supplier member based in Des Moines, Iowa, the 140,000-member cooperative set out to execute a two-year, data-driven credit line increase strategy.
University of Iowa Community CU’s leadership knew a cardholder’s balance almost always correlates to his or her credit limit. Credit users are often advised to keep their balances below 30 percent of their overall available credit, as in this article. If credit lines are unnecessarily restricted, it means lower potential revenues for the credit union. That said, revenue was not University of Iowa Community CU’s main focus.
The team had two core objectives: 1) demonstrate the credit union’s confidence in its cardholders; and 2) encourage member loyalty by offering a payment option they truly wanted to use.
Like most credit card optimization strategies, a credit line increase campaign will not be successful without repeat execution using updated data. A cardholder whose scores and behaviors trigger a low increase today may qualify for an additional increase down the road.
To-date, University of Iowa Community CU has conducted two, fairly similar credit line increase campaigns. Learnings from the 2014 campaign and updated data were used to recommend credit line increases in the second, conducted in early 2015.
In the first campaign, more than 10,000 credit card accounts were extended line increases based on risk profiles generated by data scientists, portfolio and compliance experts from IQR, TMG and University of Iowa Community CU. Stringent risk criteria excluded accounts for which a credit line increase would not be appropriate. “Ability to repay” calculations ensured all increases complied with CARD Act and Reg Z requirements.
Segmentation of University of Iowa Community CU’s portfolio, which relied on statistical models, ultimately determined the optimal credit line for each member. Each segment contained a test and a control group so the team could monitor the real outcomes of various increases.
In just 10 months, the 2014 credit line increases inspired $7.7 million in incremental credit card spend and $3.4 million growth in balances. By the time the team had fine-tuned the campaign and run it again in early 2015, profit per card per month was up by 12 percent, and the overall strategy had generated more than $29 million in incremental exposure.
Arguably best of all, the return came from a smaller investment, as marketing dollars were not wasted on uninterested or unqualified account holders.
Consistent monitoring of data and the capability to make decisions based on that data are increasingly important competencies for credit union card issuers. Credit line increase campaigns are just one of several optimization strategies that stand to benefit from the power of member intelligence this year and well into the future.
Karan Bhalla is managing director for IQR Consulting, Reston, Va., which helps business in several industries, from financial institutions to airlines, leverage data assets to increase profitability.
