What We've Learned About Credit in a Decade of Business
posted by Eric Schurr on Thursday, December 21, 2017
TMG Financial Services is celebrating 10 years in business. Founded in 2007 with three clients, we now serve 50 financial institutions and other member-centric organizations. Over the last decade, our portfolio has grown to 120,000 credit cards and $225 million in assets under management.
During the decade our expert team has managed the TMGFS credit card portfolio, a lot has changed. Rates and the associated costs of funds have fluctuated, consumer preferences have shifted and numerous new ways to pay have been introduced to the market.
Although the things we’ve learned about what it takes to create, manage and support successful credit card programs are too many to count, I’ve highlighted a few key learnings below.
1. Different community financial institutions and their cardmembers have unique needs. While some of our partners determine selling their portfolios to an agent-issuer is the best path for their business and membership, others will maintain ownership but seek out expert help to manage their credit card programs. Particularly in this rapidly transforming payments marketplace, cards teams are often looking for a second opinion, an extra set of hands or a new game plan altogether.
TMGFS was originally founded to manage purchased credit card portfolios, and our community financial institution partners will tell you our special brand of member-centric portfolio management has changed the way people think about agent-issuing relationships. Over time, however, we found our experts could also be of service to community financial institutions that want to maintain ownership of their card portfolios. The Advisory Services suite of products allows financial institutions and other credit card issuers to take advantage of TMGFS’ team of experts to evolve their own credit card program. The team applies its knowledge and experience – in everything from underwriting and collections to marketing and data analytics – to enhance existing credit card portfolios not owned by TMGFS.
2. Online shopping has profoundly changed the ‘top-of-wallet’ challenge for issuing financial institutions. Among the larger trends impacting the credit card business over the last decade is the migration of consumer purchasing to the online space. Today, e-commerce sales make up nearly 9 percent of overall U.S. sales, up from 3.4 percent in 2007. This is only expected to increase as retailers better integrate online and in-store transactions, and as smart devices, voice assistants and chat bots provide an even more intuitive, personalized shopping experience. Payments today are deeply integrated into the purchasing experience. Most merchants allow consumers to store their payment information to make subsequent purchases possible with one click, changing the way we think about top-of-wallet strategies.
TMGFS deploys strategies and shares expertise with our community financial institution partners to better position their credit cards for success in an increasingly complex environment. In the white paper How to Stay Seen as Payments Become Invisible, for example, I shared these strategies:
- Focus effort on getting your card into the primary position in stored-card environments.
- Cultivate a cardmember-centric culture.
- Offer advanced mobile features, such as the ability to dispute or flag a potentially fraudulent transaction.
- Get serious about segmentation, thinking beyond the traditional Revolver and Transactor groups.
- Create “preferred” target segments and design perks that encourage deeper engagement with your financial institution.
- Use cardmember data to understand total member/customer value.
- Explore partnerships that will allow you to offer “preferential treatment” to your most valuable cardmembers.
- Understand the mobile experience should be more than miniaturized online banking.
- Remember the motivating factors behind a consumer’s choice to own a credit card.
- Develop product bundles in which the credit card is only one piece to a much larger, more enticing pie.
3. There are typically several missed opportunities within many community financial institutions’ card portfolios. Program decisions and settings made in the past may be ready for an upgrade that will not only benefit the financial institution, but the cardmember, as well. Today, most of these discoveries are related to rates, pricing and/or credit limits.
TMGFS has helped many financial institutions through the process of converting a portfolio from fixed to variable rates, allowing them to take advantage of increased revenue in rising rate environments like the one we appear to be continuing in 2018. We have also guided partners through a switch to risk-based pricing. By setting custom-tailored rates to fit an applicant’s credit history, financial institutions enjoy both increased revenue and cardmember satisfaction. In terms of credit limits, it’s important for financial institutions to appropriately manage credit lines according to consumer risk profiles. Making changes to the credit limit based on changes in a cardmember’s risk profile does require a certain level of expertise, particularly with regard to regulatory compliance. TMGFS has been pleased to provide this service to many partners over the years.
At the end of the day, it’s our 50 collaborative, member-centric, growth-minded partners that teach us new things each and every day. They expect us to stay ahead of the trends and to provide the kind of innovative payments strategy that wins cardmember love and loyalty. It’s been a true honor to work alongside them over the last decade, and we look forward to the next decade and many more to come.
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