Trends Impacting Credit Programs

​How credit unions can respond to increased cost of living for members, rising competition, and rising interest rates. 

by Phillip Seely, AVP/customer service & portfolio development for Envisant
 
The year 2022 saw record-setting growth in new credit card accounts and balances. In the fourth quarter alone, new card accounts among Gen Z increased nearly 19% from the previous year, and total population bankcard balances reached a record $931 billion, according to TransUnion’s Q4 2022 Quarterly Credit Industry Insights Report. The current economic landscape has led to greater interest in credit cards as well as competition in the marketplace. By understanding and addressing these trends, CUs can implement and grow profitable credit programs that meet members’ needs.
 
Trend: Increased Cost Of Living For Members
As consumer expenses expand, card rewards are at the forefront of decisions about payment choices. According to a Chasing Points study from Finder, nearly half of cardholders are utilizing their credit cards for the purpose of accruing rewards points.
 
What does this mean for credit unions? Economic uncertainty and the pandemic have shown issuers the need for flexible rewards that can fit with rapidly changing priorities. Flexible options easily used for everyday expenses like cash-back and gift card rewards are the most popular, but travel rewards are making a strong comeback. Of cardholders who use their rewards, 55% are using them for cash-back and gift card rewards, while 29% are opting for travel-related rewards, according to a recently published survey by CreditCards.com.
 
Trend: Rising Competition For A Growing Market
While credit card use is rising, traditional issuers and financial institutions are now competing with other payment and loan options. Buy now pay later use is on the rise, and online lenders offer competition for personal loans, commonly used by consumers to consolidate their credit card debt
 
What does this mean for credit unions? Positioning your credit program to stand out in the competitive marketplace is vital and takes more than rewards alone. Marketing messages that speak to people’s concerns, reaching consumers where they spend their time and addressing what’s most important to them, can help strengthen and grow your credit program. Marketing strategies and messages should include:

• seasonal promotions to encourage card use;
• informative content encompassing financial health tips, how to claim rewards, and answers to credit-related questions;
• cross-platform messaging through digital channels including social, email and mobile devices to help reach a population that spends a growing amount of time online;
• communications on card security features that bring peace of mind as fraud attacks increase;
• reaching out to members who might be struggling with credit card debt to let them know about consolidation loans or other solutions your CU offers.

 
Trend: Rising Interest Rates
To address rising inflation, the Federal Reserve increased the federal funds rate in March 2023 to its highest rate in 16 years, according to Forbes.
 
What does this mean for credit unions? This economic landscape tightens margins for credit unions. To mitigate risk and maintain financial stability, regular portfolio reviews are important. Look at all aspects of your portfolio strategy for ways to address these squeezed margins. If your CU has been offering fixed credit card interest rates, consider updating to a variable rate strategy. Regularly updating your rates so they remain both competitive and sustainable benefits both CUs and cardholders alike. Here are a few reasons to implement a variable APR:
 

• overcome tighter profit margins as borrowing costs increase;
• compensate for potential losses due to greater delinquency risk;
• sustain strong liquidity and healthy balance sheets; and
• encourage responsible credit card spending.

 
How will you review and rethink your portfolio strategies to stay on top of these trends?
 
At Envisant, our mission is to help credit unions compete and to provide credit unions with a favorable operating environment and quality information, products and services, which have value, and which enable credit unions to exist, compete and prosper in the financial marketplace. Visit our website to learn more. Envisant is a DakCU Senior CAP preferred partner. Contact George McDonald, DakCU's Chief Officer of Strategic Services with any questions.