Following is an excerpt from the white paper “Credit Card Portfolio Best Practices for the Modern World.” The full version is available for download at themembersgroup.com.
Inactive accounts cost money. If you are not tracking dramatic changes in account activity – and responding accordingly – start today. For the purposes of this discussion, inactive means accounts that have been dormant for six months.
Often a credit union or community bank will stumble into trouble by putting too much energy into achieving penetration goals. Understandably, the financial institution (FI) wants the majority of its customer or membership base to take advantage of its credit card program. Often the achievement of this penetration goal, however, prevents credit card management teams from closing out inactive accounts – a costly mistake.
If credit card managers are able to identify which cardholders have suddenly stopped transacting, they may be able to stem the tide. That is why it is particularly important to monitor the consistency of account activity using programs like TMG’s ClearTrend data analytics tool. If a cardholder has been using her card between eight and ten times a month and suddenly drops to two transactions in one month, immediate action is paramount.
Very likely, the cardholder has found an alternative source of credit. Perhaps it costs her less to access or it’s more enjoyable, offering her perks like rewards or the chance to see the smiling faces of her children each time she swipes the card at the gas pump. Something as simple as double rewards the next month or a free upgrade to a customizable card may be just the thing to bring her back to her formerly favorite card.
After incenting the cardholder back, it continues to be important to monitor her activity – simply because inactive accounts can become expensive quickly. Without the interchange or fee income to offset account management expenses like cardholder support and fraud prevention, these accounts can silently drain the profitability from even the most robust portfolio. Every six months (annually, at a minimum), issuers should close inactive accounts to maintain a clean, healthy credit card program.
