Credit Unions' Credit Card Chimera

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I don’t have stats to back this assertion, but it seems to me that credit unions are looking at the credit card market as a growth opportunity these days.

Anecdotally, after linking to a news story about how Chase would drop 15% of its cardholders as a result of the new regulations, one of my Twitter buddies tweeted “time to find a credit union card.” And the CU twittersphere jumps on every mention of CUs from Suze Orman, like this one:

Don’t get me started with these credit card companies….here’s the answer: Credit unions. So many credit unions are giving you no balance-transfer fees, low interest rates. [And] most credit unions aren’t staffed by the dumbest people you will ever meet.”

As a side comment here, I’m not sure why Ms. Orman thinks card issuers employ the “dumbest people you will ever meet.” Personally, I’m very impressed that my card issuer can detect fraudulent patterns in card use, and called me when they noticed that my card was used in both Massachusetts and Texas on the same day.

But the bigger question here is this: Why do credit unions think that the customers that the big issuers will drop are such a great business opportunity? Does it occur to credit unions that the reason why the large issuers are dropping these people is that they’re not profitable customers?

There’s a new definition of “good customer” in the credit card industry these days. The old definition: Someone who revolves balances and pays late. Translation: Someone who pays a lot in interest and late fees.

New definition: People who use their credit card a lot. These folks often don’t revolve, and if they do, don’t do it for long, and make way more than the minimum payment. They drive profits for the issuer through interchange fees, not interest fees. And they’re way more concerned about the quality of the rewards program than they are interest rates or balance transfer fees.

Translation: The card customers that credit unions are likely to obtain by digging through the large issuers’ trashcans may not be very profitable.

If credit unions see this a springboard to obtaining new members and growing the relationship, then why are so many CUs so proud of letting deposit accounts walk out the door when the member wants a good or better rate?

Credit unions can beat their chests all they want about how superior their card programs are. The reality is that only certain types of the cards they offer are a better deal. On the rewards front, the CUs are lagging. And that’s what luring and retaining the “best” cardholders today.

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