5 Ways to Boost Your Credit Union’s Card Income, 5 to Reduce Expenses
By Sarah Snell Cooke, Principal, Cooke Consulting Solutions
Your credit union could be missing out on some serious coin if you aren’t managing income and expenses properly!
Lost income opportunities mean less money to invest back into your members. The three main sources of credit card income should be approximately 70% finance charges, 15% interchange income, and 15% fee income, according to Ondine Irving, founder of GoCUCards. These ratios can help define the marketing needs of your credit union’s program at the highest level.
Credit unions rarely reach 15% on their fee income. Why?
- Review late-fee system parameters. For example, assessing late fees after a 5-day grace period rather than 10-day grace period can more than double your fee income. One credit union reviewed by GoCUCards showed a discrepancy of more than $230,000!
- Adjust over-the-limit parameters to post-CARD Act realities. Credit unions were comfortable allowing some members to exceed their credit limits by as much as 10%, but many have eliminated the associated fees without lowering this ceiling.
- Consider opt-in over the limit fees instead, which is permissible by the CARD Act. This could recoup thousands of dollars for your credit union—and your members.
- Ensure your minimum payment matches your late fee payment post CARD Act.
- Double check your interchange payments to ensure you’re receiving the gross, not net, on this line item. The blended interchange rate for a credit card portfolio should be between 1.67% and 1.77%.
A credit union should expect its credit card program to generate a minimum annual net income of $75 per account. Ondine has plenty more advice where that came from on the income side, but what about the other side of the ledger? You can expect charge-offs to be your No. 1 expense, followed by the processor and salary expense, however, here are some things you can do to help keep expenses under control:
- Audit each expense item on your vendor’s invoice,
- Assess added features, such as EMV, loyalty programs, cardholder alerts, online banking, marketing, etc.,
- Right-size rewards programs,
- Review authorization and transaction posting fees; they should be a combined total of $0.04-$0.06, and
- Ensure no more than 10% of accounts are blocked from cardholder use at any time.
In addition to attending GoCUCard’s July 26, 2017, webcast,“Managing Income and Expense of Your Credit Card Portfolio,” you can review your age of your processor contract and pricing, determine if the pricing structure is up to date, and find out if you’re paying for nonessential items.