How to Manage Credit Card Products in Light of the Fed Rate Increase

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.

Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of collective action to provide the Association’s member credit unions with exclusive, high-quality, competitively-priced products and discounted services. Try our new CU Match Up tool to find the right partner for your credit union’s business needs. Contact Director of Strategic Partnerships Craig Reed at creed@nwcua.org today to find out how Strategic Link can help your credit union save money while meeting its goals in 2016 and beyond.

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