Decline In Credit Card Usage
By Joyce Moed, Reporter

DALLAS–While industry leaders agree that a decline in credit card usage is expected for this holiday season, it may not be worth writing home about.

"We have seen a decrease in October, but it’s single digits," said Dusty Bowers, TNB Card Services’ VP, client relationship management. "So far we expect to see low, single-digit decline in credit card use for the holidays."

Glenn Schectcher, director credit services for PSCU Financial Services in St. Petersburg, Fla., said growth in card use is expected during the 2008 holiday season, but not as much as usual.

"We’re certainly not going to be naïve in thinking it’s going to be business as usual," he said. "But we certainly don’t see the sky falling. We really don’t anticipate it to be the gloom and doom that the sky is falling."

Schectcher also expects consumers to use their credit cards more on staple items–those usually purchased with cash–which may also add to the growth.

Bowers said the best thing credit unions can do to prepare to not get burned this season is to maintain fresh credit scores of their card-users "so you know the risks you are taking–including bankruptcy scores, not just FICO," he said. Another strategy is to look at decreasing credit limits for those with inactive accounts, and decreasing the amount that can be used for cash withdrawal.

Another idea TNB offers is to "step up your review of risk-management portfolios," Bowers said. "Ensure they have the right information from their processor."

Bowers also suggested that credit unions consider tightening their authorization strategies, and increase their early state collection efforts.

"Maybe be more aggressive in that first cycle," he explained, instead of waiting for the second or third cycle.

"Credit unions really need to look at their fee structure," Bowers added. "Fees are primarily used to influence behavior. A lot of credit unions are sometimes too good when it comes to fees. This may be the opportunity to use fees to modify their members’ behavior."
From PSCU’s perspective, advice consists of finding out where they can give line increases or where they should reduce them.
"We really look at this as an opportunity to shine," Schectcher said. "The potential for that is there. But again–from what we’re seeing."

Schectcher recommends for CUs to start to have more in-depth analysis of their members card use, including the velocity of charges and the velocity of payments.

"How are they managing their card totality?" he said. "We’re working closely with our members to be proactive. We’re looking for long-term opportunities. We know it’s tough. We also believe this is a great time of opportunity for the industry. If you take a look at the amount of people in credit unions compared to 10 years ago, the number is growing.

Ron Kishen, SVP of credit card services for Fidelity National Information Services in Jacksonville, Fla., the parent company of Asset Exchange, agreed that credit unions will see some reduction in credit card usage, but said there’s a lot CUs can do about it.

"This is a great message we’re sending out to them," Kishen said. "It all comes down to approaching in a very proactive manner."

Kishen said there are still many people out there that deserve credit cards, but are having trouble getting one. Credit unions may be able to help them.

"Their members will appreciate someone giving them credit," he said.

Credit unions also have the benefit of being more consumer-friendly, and not always charging the higher interest rates and fees that some other card issuers do.

Less card usage can definitely hurt credit unions, Kishen said, as they will lose that income, "which is why I think they need to be more proactive."

"I think it’s a challenging time, but there is an opportunity out there if they do it right," he said.
Studying data about your members’ credit card usage is vital, Kishen said. For example, if less than 20% of a credit union’s credit card carrying membership carry the CU’s credit card, this mean eight out of every 10 of these members has a credit card from somewhere else.

"If you know what penetration don’t have your card, get it to them," he said. "Get your plastic in their wallet."

However, Kishen stressed, credit unions still need to be smart about it in regards to credit scores, fees, etc.

One card usage not expected to decline is that of debit cards, said Tom Gandre, chief debit officer for PSCU Financial Services in St. Petersburg, Fla.

"Overall, debit card usage has been fairly strong continues to grow," he said. "We wouldn’t expect any dramatic dip in debit card usage."

This is mainly because the majority of debit card use is for staple items, and is mainly seen used in grocery stories, gas stations and convenience stores, Gandre noted. Also, debit cards are easy to use and help consumers avoid fees.
"Consumers use debit cards in lieu of cash and checks," he said. "Debit cards are typically used for staples. When consumer spending dies down, people still buy the staples."

The only factor that has brought debit card usage down in recent months was that less people were purchasing gasoline due to the rise in fuel costs, Gandre said.

Gandre said that PSCU has grown about 20% in debit for the year.

"If the economy was good, we would have slightly better growth rates," he noted. "The slowing economy does have some impact on debit card usage, but not nearly as significant as others. "

www.tnbcard.com
www.assetexchange.com
www.fidelityinfoservices.com
www.pscufs.com