Constructing Growth of a Card Portfolio
 While credit card programs throughout the credit union industry were growing, Freedom First Federal Credit Union's card program had become stagnant. It was generating only marginal revenue. The credit union was actively marketing to members, but with limited product offerings and one interest rate for all cardholders, the card aroused little interest. Freedom First knew a significant change was needed to ignite growth within the portfolio.
"Our card product was no longer competitive, yet we knew we wanted to keep it. We embarked on finding a card partner that would enable us to retain ownership of the portfolio but give us the tools to improve it," says Paul Phillips, CEO of Freedom First. His credit union's choice of partner was TNB Card Services.
The $190 million credit union, based in Roanoke, Virginia, worked closely with TNB's portfolio optimization team to thoroughly analyze its card program. The portfolio was rated based on risk, credit line management, and portfolio segmentation. From FICO scores to pricing and product, every program detail was evaluated. TNB's portfolio consultants identified where Freedom First was leaving money on the table and then developed a comprehensive marketing plan to boost the portfolio's performance.
The new card program was rolled out to Freedom First cardholders and members in early 2006. It was so well received that in the first seven months, Freedom First experienced a 16.4% growth rate in outstanding balances, which is more than nine times greater than growth from card portfolios among its credit union peers over the same time period.
The key to Freedom First's success was the way it overhauled its card program and established a more robust product. It implemented flexible and dynamic pricing based on the characteristics and behaviors of individual cardholders. The credit union also introduced a Platinum card, increased credit lines, instituted a cash back rewards program and began offering balance transfers, available to every cardholder, at a rate of 4.99% for the first six months. New cardholders also receive a six-month introductory rate.
By aligning its card products and rates to the individual credit score of cardholders, Freedom First was able to extend Platinum cards and higher credit limits to two-thirds of the more than 9,000 accounts it converted to TNB. The average credit line is now nearly $3,500, a 15% increase over the pre-conversion portfolio average.
"Overhauling our portfolio has given our card program a major lift," Phillips says. "We knew our credit cards were lacking features, but had no idea just how limited the program was until TNB's consultants showed us where and why the portfolio was underperforming."
Freedom First was hoping to add a few bells and whistles, but ended up with an entire orchestra, Phillips adds. "Not only did cardholders receive a reduction in their card rates, they were offered rewards for using the card, which resulted in a large number of cardholders increasing usage."
TNB also provided Freedom First the administrative tools to manage card accounts in real time. Using CardStationTM, as the credit union updates cardholder data, the system records who made the change and when, creating a reliable audit trail. "The system is also so easy to use it reduced our training time, which has enabled us to expand the number of employees that have access to it," Phillips notes.
"Going forward we plan to expand our marketing effort and begin tapping into our non-cardholder membership base. TNB's marketing programs will make it easy for us to stay focused and on track to continue to grow our portfolio," says Phillips.
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