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Three Factors to Consider When Building Your Credit Card Strategy

Adapted from Elan’s publication, “Three Factors to Consider When Building Your Credit Card Product Strategy.”

Numerous FinTechs have emerged to serve the specific needs of certain populations with targeted product offerings. These digital financial institutions offer checking and savings, prepaid cards, peer-to- peer payments, paycheck advances, and mobile investing. Even though these FinTechs have now increasingly penetrated the market, community banks would be remiss to concede on certain competitive segments and should instead, focus on their own product, experience, and innovation while leveraging their established brands and market presence. From there, community banks can strive towards serving these populations by creating spaces and solutions to serve their consumer base within various communities. When developing a strategy to reach various populations, community banks should consider integrating three main pillars into their plan: tailored products, technology, and financial education.

Tailored Products

Identifying key products that may appeal to members’ needs is one way that community banks can begin to break down banking barriers. Credit cards can be a central and convenient tool to maintain financial health. A recent study by Elan and PYMNTS found that 21% of active credit card users (those who have at least one credit card and have made at least one purchase with it in the last 12 months) who live paycheck-to-paycheck “comfortably” sometimes revolve their credit balance from month to month. Thirty-three percent of those who live paycheck-to-paycheck “with difficulty” always or usually revolve their balances from month to month, indicating that it is a tool used to manage expenses.

In addition to offering payment convenience, a credit card can be a fundamental product in engaging individuals looking to build credit over time, eventually leading to increased credit. Individuals may have trouble getting approved for a standard unsecured credit card if they find that their credit score is below 650, either from having a limited financial history or past credit problems. Alternatively, one option may be a secured card to build credit if they pay their card payments according to terms.

A community bank may consider a tailored secured credit card product to help members build their credit scores. The member puts down a security deposit for the account, which typically determines the credit limit. Once the cardmember completes a set number of on-time payments, the cardmember may begin to establish a healthy credit history, providing the opportunity to open an unsecured card relationship in the future. Secured cards have become more competitive and appealing with many offering rewards, graduation strategies and full integration into a financial services provider’s digital infrastructure. These graduation strategies may help with long-term member retention as well, given the positive reinforcement of good behaviors.

Technology

Digital technology is rapidly increasing in importance and developing accessible technology is one way for credit unions to eliminate barriers to engage selected populations. As of February 2021, 85% of U.S. adults have a smart phone, making mobile and web features an essential opportunity to reach a broader community. These individuals may not live close to a community bank branch or have easy access to transportation to get to a physical location.

Forty-one percent of consumers say that mobile apps are their primary means of banking, making mobile technology a top priority for community banks. Use of online banking (mobile and web)
continues to rise and has increased pre- to post-pandemic by 13%, an 11% increase on mobile app alone. In 2020, 88% of general-purpose card applications were submitted digitally. Examples of
technology needed to reach individuals, especially individuals new to banking, include an easy-to-use mobile app, web-based features, budgeting and payment tools and straight-forward product
information. Mobile apps should contain all the capabilities members need to complete critical banking functions without having to visit a branch. Mobile apps should include these features:

  •  Ability to check balance and make a payment
  • DIY servicing such as setting travel notifications and enrolling in paperless statements
  • Options to set up and manage account alerts, request a balance transfer, and view account statements
  • Fraud monitoring capabilities like transaction disputes and lock/unlock card for transacting
  • Review rewards earned and redeemed easily

Financial Education

Access to comprehensive and easy-to understand financial information is an obstacle for many cardmembers, particularly those who have avoided traditional banking, but an opportunity for credit unions to make financial resources accessible and readily available.

When it comes to financial education in 2020, over 1 in 10 (13%) U.S. adults admit they are “not very” or “not at all” confident in their knowledge of personal finance. This figure has risen each year since 2017 (8% in 2017, 10% in 2018, and 12% in 2019).

A recent report by Elan and PYMNTS found that 61% of those living paycheck-to-paycheck “comfortably” reported that tools for improving credit score influenced their choice of credit card. Seventy-two percent of those living paycheck-to-paycheck “with difficulty” said the same. Seventy-five percent of active users who are parents cite credit-building tools as a key factor when deciding between cards.

These findings highlight that consumers have a desire to engage with credit unions to build better credit but may not know how, or where, to start. Financial education tools, available online and in app, should cover a variety of topics, including, but not limited to:

  •  Cardmember’s current credit score, factors that determine it, and tips to improve their rating
  • Best practices for when and how to use credit cards to build credit
  • Ideas on how to manage loans and budget savings
  • Tips to protect one’s financial information from cybersecurity threats, including a clear outline of when and how your credit union would contact a member for information ICBB in partnership with Elan Financial Services, offers an efficient, easily managed, profitable credit card program. To learn more, contact us at solutions@icbb.bank.

ICBB in partnership with Elan Financial Services, offers an efficient, easily managed, profitable credit card program. To learn more, contact us at solutions@icbb.bank.

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