How to Manage Credit Card Products in Light of the Fed Rate Increase
January 15, 2016
January 19, 2016
The increase influences rates paid on savings and interest earned on loans, making saving money more lucrative and borrowing more expensive. Credit unions can expect rate changes on most financial products including credit cards, mortgages, savings, CDs, and car loans.
Be Aware of the Credit Card Rate Sensitivity of Your Cardholders
Whether a credit union has a variable or non-variable rate credit card product, the announced 25 bps increase, and additional increases forecasted throughout 2016, create an environment credit unions have not been familiar with since before the economic downturn. As a result, credit unions will need to be more focused on the credit card rate sensitivity of their cardholders.
For example, credit unions offering a non-variable rate product can expect to see a slight decline in margin as the cost of funds increase. Credit unions with a variable rate product will not experience the same decline in margin, but may experience a decline in demand as cardholders become more rate sensitive in a rising rate environment.
This new rising rate environment, even as gradual as it may be, accelerates the importance for credit unions to actively manage their portfolios. A concentration around improved penetration, retention, activation and usage can help a credit union withstand the adverse effects of shrinking margins and the threat of declining demand so they can maintain a healthy and profitable program in 2016.
Offer Members a Complete Suite of Products Including Emerging Payments Solutions
It is important for credit unions to provide members with a complete product suite in an effort to counteract rising rates. This would include making sure your credit union is enabled to provide members with the latest emerging payments options like Apple Pay, Samsung Pay and Android Pay. By making your card top-of-wallet in a digital platform, it is less likely that a cardholder would switch to another card.
Going forward, you should explore your card processor’s programs and plans and continually be on the lookout for additional rate increases.
Editor’s note: Bill Lehman is the SVP, Portfolio Consulting Services with CSCU. He manages the consulting teams responsible for credit union relationships. Under his leadership, the portfolio consultants take a personal approach to deliver expert guidance to help credit unions assess their payments services needs.
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