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Credit Union Credit Cards: A Threat To Big Banks?

While they may not put the major credit card issuers out of business anytime soon, credit unions are convincing more of their members to carry union-issued plastic.

Callahan & Associates, a financial consulting firm, released a report last month that found that credit card penetration rates at credit unions reached 15.3 percent in 2013. That number is 55 basis points greater than 2012 levels and 95 basis points more than five years ago.

But while the overall gains are modest, the report notes that some individual credit unions claim credit card penetration rates of up to 65 percent, suggesting that unions that emphasize credit cards could make major gains in the future. Still, some industry analysts question whether credit unions are willing to offer cards that truly rival those offered by major banks.

Credit unions that have succeeded with credit cards

For credit unions, credit card market penetration refers to the number of members who have a credit union-issued card. For example, the industry average of 15 percent means that 15 of every 100 credit union members have a credit card affiliated with their institution.

According to Callahan & Associates, the credit union with the best market penetration can't be found on the list of the nation's 50 largest credit unions. Instead, it is Taupa Lithuanian Federal Credit Union in South Boston, Massachusetts. The 33-year-old institution only has 1,200 members, but more than 65 percent of them carry a Taupa Lithuanian credit card.

Nationwide, the analysis found that at least of half the members at the following credit unions had a credit card opened through their institution.

  • Taupa Lithuanian in Massachusetts: 65.66 percent
  • Valley One Community in Ohio: 60 percent
  • O.A.S. Staff in the District of Columbia: 58.18 percent
  • Napus in Virginia: 53.6 percent
  • Entrust in Virginia: 51.83 percent
  • KUE in Kentucky: 51.31 percent
  • Houston Police in Texas: 51.25 percent
  • School Employees Lorain County in Ohio: 50.66 percent

The need for more competitive terms

While credit unions have made some progress with their credit cards, their terms may still not be attractive enough to lure customers from their big-brand cards. That's according to a report from card-processing organization Card Services for Credit Unions, which notes that institutions may have to offer more if they want to compete with cards offered by major banks.

Among the strategies suggested in the report is the adoption of zero-interest teaser rates and the development of rewards credit card programs that are on par or better than those offered by banks. However, the rewards might not have to be anything extravagant. At Taupa Lithuanian, the incentive they use to convince members to open an account is a $10 coupon to the SBLCA Lithuanian Kitchen.

The first step, however, may simply be to get credit unions to offer credit cards. Callahan & Associates says that during the first quarter of 2013, only 54 percent of credit unions offered credit cards to their members.

While credit unions may incur some expense in setting up a credit card program, Card Services for Credit Unions argues it could be even more costly for institutions to ignore customer demand for credit cards. With banks offering attractive deals for customers who open both credit card and deposit accounts, credit unions may lose members who decide to consolidate their business elsewhere.

But if the numbers from Callahan & Associates signify a trend, credit unions who take the plunge may be able to count on more customers at least considering their credit card.

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