ONLINE C SCHOOL … · delivery, mobile tools and features, contactless a focus… Q1 Update Balances -1% from Dec. (typical) Balances +8% from yr prior Q1 Update NCL Q1 = 3.1% Banks

Timothy Kolk(603) [email protected]

2019ONLINE CARD SCHOOL

Session #3

MAPPING PRODUCTS TOMEMBER EXPECTATIONS

September 2019

TRK ADVISORS

TRK ADVISORSTRK ADVISORS

The Online Card School Purpose

• Provide market and competitive information

• Build critical management skills

• Share proven approaches to growth & profitability

• Develop competitive products you can be proud of

• Help you prove your program’s value to the credit union, your members, and your own sense of living a life fully realized.

CO-OP Financial ServicesStrategic Vision: Your Growth Is Our Growth

SEAMLESS SECUREGreater

Integration

Simplified Client Experience

Business Intelligence

One CO-OP

Ease Of Expansion

Better Authentication

New Tools

Consultation

Business Intelligence

Reporting


Webinars, Documents & Access

• Live webinars are open to all

• Need to be a CO‐OP or TRK Advisors client to receive Access to this year’s recordings Log‐in to library of past sessions (3 year cycle) Downloads of presentation documents

• To register for access: Go to www.onlinecardschool.com Register via the “Learn More Today” area Enter the CO‐OP promotional code (or leave a related note in the

“Message” input)

• Not a CO‐OP client? Well, let that be a lesson to you!

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2018 Sessions (Recordings On‐Line)

#1 CARD MARKET OVERVIEW

#2 DESIGNING PROGRAM REPORTINGFOR SUCCESS

#3 BUILDING YOUR ANNUAL CARDACTION PLAN (MORE THAN ABUDGET)

#4 LOOKING AHEAD TO 2019: WHAT’S NEXT?

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2019 Sessions

Apr 10 CARD MARKET OVERVIEW

June 30 CALCULATING PROGRAMPROFITABILITY (& USING IT)

Sept 5 MAPPING PRODUCTS TOMEMBER EXPECTATIONS

Oct 17 MATCHING PRICING & PRODUCT VALUE TO RISKLEVELS

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What We Covered in the 1st Session

1. Market has reached record levels• Credit unions overall are doing well. Again.• BUT: half shrank & 80% grew at < market rates

2. Credit losses are creeping up• CU rates now at all‐time high except for recession

3. Prime increases since 2015 (+225bp) have fueled increasing revenues. Move to Signature has fueled revenues. Rewards and promos have fueled expenses.

4. Innovation is creeping, but relentless: data access & delivery, mobile tools and features, contactless a focus…

Q1 UpdateBalances -1% from Dec. (typical)

Balances +8% from yr prior

Q1 UpdateNCL Q1 = 3.1%Banks = 3.8%

Gap = 70bp…closing!

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Q3 UpdateDown 25bp


What We Covered in the 2nd Session

1. How to calculate card program profitability

2. Data sources by processing environment

3. Building a management report with KPIs & P&L

4. Expanding to product type and other refinements

5. Calculating how much of your total credit union profitability comes from credit card (do this!)

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THIS SESSION:

Data Driven Segmentation & Opportunity Sizing

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Why This is Particularly Timely

• Profitability declining: Prime down, Funding costs up, charge‐offs up, expenses up

• Targeting where marketing resources are spent for the biggest impact is more important than ever

• Planning season is here: you can actually have a fully baked tactical plan from this

• Results beget more resources, to get more results, to….

• As always, card can support the strength of the entire member relationship if you know what each member wants (or the opposite if you get it wrong)

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And Let’s Remember….Growth is Getting Harder to Find

TurnIssuer Balances Purchases Total Active % Act Bal Purch RateJP Morgan Chase 156,632$ 739,484$ 73,751 40,210 55% $3,895 $18,391 4.7CitiBank 108,570 404,930 56,654 38,500 68% $2,820 $10,518 3.7Bank of America 107,408 357,646 42,827 28,555 67% $3,761 $12,525 3.3Capital One 100,210 336,910 90,470 47,700 53% $2,101 $7,063 3.4Wells Fargo 41,239 131,704 17,510 9,870 56% $4,178 $13,344 3.2US Bank 39,582 144,731 22,442 11,323 50% $3,496 $12,782 3.7Barclays 26,391 79,060 10,920 7,680 70% $3,436 $10,294 3.0Synchrony 23,131 54,369 25,874 14,347 55% $1,612 $3,790 2.4USAA 17,388 42,901 5,395 4,260 79% $4,082 $10,071 2.5Navy FCU 16,661 21,714 3,146 2,286 73% $7,288 $9,499 1.3Total, Top 10 637,212$ 2,313,449$ 348,989 204,731 59% $3,112 $11,300 3.62018 Change 3% 10% 2% 2% 0% 1% 7% 3.42017 Change 8% 16% 5% 5% 0% 3% 10%

Top 10 Visa & MasterCard Issuers in the US, 2018Volume ($MM) Accounts (M) Per Active

Does your organization understand this (yet)?11


In Today’s Discussion

• Review a detailed segmentation case study

• Survey of how large issuers are communicating their card value propositions

• Look at a couple credit unions

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REVIEW OF AN ACTUALSEGMENTATION EXERCISE

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Segmentation, Not One Answer

It’s Simple, Really• Credit cards are a financial tool

• Like any tool, different people use it different ways

• Unfortunately, they aren’t always honest about how they use it (even with themselves)

• It is up to you to figure out how they use it

• Only then can you develop your own ‘set of tools’ to meet those varying expectations.

For Credit Card: 20% creativity and 80% execution.14

TRK ADVISORS

50%? 25%? 25%?

Understand: Different Purposes for Card

High Risk Low Risk

Convenience Users(Transactors)

What are your #s?

First View: Types of Cardholders

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Credit Union Success

All Consumers

Credit Users(Revolvers)

Declines

Depends GOOD Struggle

TRK ADVISORS

The Institution

• $1B+ CU with 200,000 members and 30,000 card accounts

• Overall performance strong

• Looking to to best serve their members

• Card portfolio > $100 million

• Card profits are strong: 5% ROA

• Very fact‐based organization: opinions after facts

• Have internal evaluation and prioritization process

Case Study/Walkthrough

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TRK ADVISORS

First Step: Define & Gather Data

• Internal Card File: data on 30k cardholders₋ Open date, line, rate, balance, purchase $, cash $ volumes, balance transfer $, interest paid, fees paid, delinquency history, payment rate, status, DQ, other products,…

• Internal Member File: data on 200k members (incl. above)₋ Member date, member duration, other loans, depository balances, debit transaction velocity, Raddon segmentation, Internal profitability measures, Acxiom segmentation, Occupation, …

• Experian Data: On all members₋ Credit score₋ Income and Debt‐to‐Income estimators₋ Credit Card Use (TAPS & Trendview)


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TRK ADVISORS

$0

$50

$100

$150

$200

$250

$300

$350

390 440 490 540 590 640 690 740 790 840

Millions

Spend by Score Range: All Members

Bellco Spend Other Spend

First Step: Get the Team Interested

Credit Union

$0

$20

$40

$60

$80

$100

$120

390 440 490 540 590 640 690 740 790 840Millions

Balances by Score Range: All Members

Bellco Balances Other BalancesCredit Union


Showing how members needs are not being met can be pretty motivating!

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TRK ADVISORS

0%

5%

10%

15%

20%

25%

30%

390

410

430

450

470

490

510

530

550

570

590

610

630

650

670

690

710

730

750

770

790

810

830

Penetration Rates by Score Band

Pen %


And who knows what else…

Every situation has to follow it’s own findings.19

TRK ADVISORS

Total Member Base200,000

Has Credit Union Card30,000

No Credit Union Card170,000

Too Risky?40,000

$200MM in Spend$100MM in Bal.

Risk OK100,000

No Other Cards7,000

Has Other Cards93,000

Credit User40,000

Convenience User

53,000

High Use35,000

$1.2B Spend$200MM in Bal.

Low Use18,000

$50MM Spend$40MM Bal.

High Use22,000


Low Use18,000


Continued on next pageNote: 30,000 fall out due to no score or other issue

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TRK ADVISORS 21

Total Member Base200,000

Has Credit Union Card30,000

Inactive10,000

Long Time6,000

Recent4,000

Active20,000

Revolver12,000

Transactor8,000

No Other Cards1,500


Low Use1,500

$6MM Spend$5MM Bal

High Use3,000

$100MM Spend$80MM Bal

No Other Cards1,000


Low Use1,500

$5MM Spend$3MM Bal

High Use1,500


High Bal.9,000


Low Balance3,000


High Spend2,000

$20MM Spend$3MM Bal

Low Spend6,000

$60MM Spend$8MM Bal

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TRK ADVISORS

Now You Know

• Which members are likely to have balances elsewhere

• Which members have spend elsewhere

• If you product set’s performance is particularly strong or weak in certain market segments

• What risk segments you are doing well with, and which you are not (and if the results are ok with you)

• Who in this mix is a likely revolver, transactor, rate surfer, etc.

• External labels may not match what you see in actual behavior!

Once This is Done…

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This information can greatly focus efforts, improve results, and ensure strong marketing program ROI.


HOW ARE LARGE ISSUERSPOSITIONING THEIR

PRODUCTS?

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TRK ADVISORS 24TRK ADVISORS

Large Issuer Positioning Tells a Story

Capital One Travel Card• Clean, not a lot of reading

• Notice the order of things

• Earn rate: Allow for self‐segmentation

• Bonus points is 2nd item listed

• Then another special feature (consistent with self‐segmentation)

• Flattering description of who qualifies (travel is ‘aspirational’)

• The rate, leading with Promo Rate on no fee card (value conscious)


Large Issuer Positioning Tells a StoryCapital One Cash Back

• Clean text

• Cash back value up front

• Promotional value second

• Guidance on who qualifies (segmentation of a type)

• Promo rate next

• And then Go To Rate


Large Issuer Positioning Tells a StoryChase Cash Back Card

Was $150 last time

Was listed 3rd last time

APRs +100bp since last time. BT fee lower now.

Wasn’t even listed last time

Also a new message


Large Issuer Positioning Tells a StoryChase No Rewards Card

Up one spot

Up one spot

Down two spots


Large Issuer Positioning Tells a StoryDiscover

Travel & Cash Back

Almost no changes

Used to be a woman in a bathing suit

Now says ‘never expire’

Increased the ‘match’ example

Added ‘redeem for cash’


Credit Union Pages: The Bad• Top 50 CU portfolio

• The one that shrank the most in 2018

• No cash back

• No points bonus

• No intro rate

• FIXED RATES! (is that working?)

• Words. Words. Words.

• Tabs have even more words.


Credit Union Pages: The Bad$20 million portfolio, Shrank 9% in one year!

• GREAT rates

• No promos: rates or rewards

• No idea of Rewards value


Credit Union Pages: The Bad$20 million portfolio, Shrank 7% in one year!

Interesting idea: Tell them what they don’t get


Credit Union Pages: The Good

• Randolph Brooks CU

• Large portfolio: $500MM

• +24% in 2018

• Two cards: Cash Back & Rewards

• Leads with the main point for each

• Promo rates


Credit Union Pages: The Good

• Sharon Credit Union

• $5MM portfolio, +14%

• Intro rate promotion

• Cards to a specific purposes

• Promo points, even if modest

• Bold on rate for Low Rate product


WHAT’S A CREDITUNION TO DO?

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No Need to Reinvent the Wheel

• Your member segmentation work creates an understanding of different behavior patters

• Different segments respond to different value elements

• Copy the approach of the big banks. LESS IS MORE

• Rewards: Value, no fee, ease of use, cash + other options

• Rate: Intro Rate & Go To Rate

• Separate them!

• No one picks a card based on warrantee insurance and the like. Stop ranking it like everything else.

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Reward Cards: How to Fail

• Have a weak value proposition (do you use it?)

• Make redemptions tricky to understand/use

• Don’t make value clear in first 10 seconds

• Send people to a demo web site, point out it’s a third party, make it only semi‐functional (or worse)

• Weak staff training

• Allow CFO to think of rewards as an expense, not an investment (P&L anyone?)

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Perfect marketing of an uncompetitive product is a waste. If necessary, fix this product first.


Low‐Rate (no reward) Cards!!!

• The large issuers are not good at this segment

• Mainly because most consumers don’t want them

• But many credit unions have significant amounts of rate‐conscious members

• While rewards are driving much of the market growth and new account volume, do not forsake this segment!

• Protect who you have (but make sure they know you have rewards if they change)

• Value = strong credit lines, promotions to gather balances, and fair rates & fees. These are your messages.

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This segment is the earnings‐producing engine of many credit union portfolios.


Then You Get to Have Fun

Matching Proposition to SegmentSegment Examples Proposition (examples)Revolver/Credit User Rate (Intro, BT, Special period); Refund of interest; Points on BTsTransactors Annual bonus, 2x for holidays, 5000 after 20 purchases…Inactives Points, No fee BT with great rate (depends on use elsewhere)Valued demographic 25‐50% point bonus above base level every quarterAffinity College gear, special access, points auctions…Millennial Low threshold rewards; Budgeting/info tools; Local merchantsCredit builder Interest refund with prompt payment; Product graduationNew members Great BT rate and duration if you “Cut up other cards”Mature Promo gift cards for Dunkin Donuts/Starbucks/EtcEmployees Best rate and rewards; pay incentives in reward points

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Please don’t do the fun stuff first. That’s how Marketing gets a bad reputation.


What Happens If You Don’t?

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• New account volumes are slowing even for the high performers. Are yours?

• Total accounts and active were only up 2% last year. That was average! How did you do?

• Balances were up 3% last year. Are yours?

• Purchases for the top 10 are up 28% over the last two years. This may be the most important #.

Card can be 25% or more of all credit union net income. Did you prove that? Did you stress that? Planning season is here…


2019 Online Card School

April 10 CARD MARKET OVERVIEW

June 20 CALCULATING PROGRAMPROFITABILITY (& USING IT)

Sept 5 MAPPING PRODUCTS TOMEMBERSHIP EXPECTATIONS

Oct 17 MATCHING PRICING & PRODUCT VALUE TO RISKLEVELS

CO‐OP Clients 3 Year LibraryAll Slides

All Recordings

Live Sessions Open to All

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THANK YOU

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