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

How to Manage Credit Card Products in Light of the Fed Rate Increase
Posted: Jan 4, 2016
Categories: Credit Cards, Rates
Comments: 0
Author: Bill Lehman

The Federal Reserve recently announced an increase in the Federal Funds Rate by a quarter point (25 bps)—the first interest rate increase in over seven years. Although the move by the Fed is a small step at this time, it will result in a ripple effect across all rates.

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.

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Bill Lehman

Bill LehmanBill Lehman

With over 20 years of progressive executive leadership in the electronic payments industry within the credit union industry, Bill now serves as the SVP of Managed Services for Trellance.

In this role, he and his team of Sr. Portfolio Consultants are responsible for assisting member credit unions

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