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As Credit Crunch Tightens, Financial Institutions Look Within for Opportunities

Credt OptimizationAs the mortgage crisis continues to wield a tight grip on the banking industry, financial institutions are scaling back their pursuit of new lending relationships.

“In the first quarter alone we have seen a 50 percent decline in secured loan direct mail solicitations,” says Stephenie Williams, senior strategic account planner for Harland Clarke’s Marketing Services Client Strategy department. “That’s a key sign that banks are focusing inward. There’s not much appetite to look for new account holders because the possibility of default is too high.”

Not surprisingly, banks and credit unions are turning to their own backyards to cultivate less risky growth opportunities. One example is the focus on revolving credit lines that are not fully utilized by a financial institution’s existing account holders. There are plenty of people who fall into this category. According to, more than half of all credit card holders are using less than 30 percent of their total credit card limit. And the Consumer Bankers Association notes that, on average, consumers only use 55 percent of their available home equity lines.

Other industry statistics show that a third or more of financial institutions have dormant or inactive accounts, and that only 14 percent of Americans use more than half their available credit.

“There is a real supply and demand problem,” says Williams of consumers’ desire for new credit combined with financial institutions’ unwillingness to extend new lines of credit due to market conditions.

Credit Optimization

Five Facts You Need
to Know

1. What is Credit Optimization?

Credit Optimization is a comprehensive, direct marketing solution designed to maximize the profitability of existing credit accounts. It increases revenues by encouraging account holders to activate and utilize existing credit accounts.

2. Who is it for?

Any financial institution, regardless of size, that issues revolving credit and installment loans to account holders.

3. How does it work?

It targets account holders at key times during their life cycle with intelligence-based communications, such as skip-a-pay offers, convenience check letters and check packs, to stimulate credit usage.

4. What types of accounts does it target?

Credit Optimization will reach account holders with personal and/or business loans and lines of credit, home equity loans and lines of credit, personal credit cards, and small business credit cards.

5. How do I know if Credit Optimization is right for us?

If your financial institution meets one or more of the following criteria, Credit Optimization would be a useful marketing tool:

  • Your current portfolio utilization rate is less than 40 percent.
  • You are not monitoring utilization rates.
  • You have a high attrition rate on your credit accounts.
  • You have a low 90-day activation rate.
  • You have a high number of credit accounts with no activity (a zero balance) for up to 12 months.

Cut Risk and Boost ROI With Harland Clarke’s Credit Optimization™ Solution

Existing credit card account holders are a known quantity, explains Nekasha Ross, marketing services manager with Harland Clarke. “You know more about their level of credit risk,” she says. Having ready access to account and payment history enables bankers to be more selective about whom they target and allows for more customized messaging and offers. In effect, marketing to existing account holders can be less risky since financial institutions can conduct periodic reviews of their revolving credit accounts.

“By looking at how long customers have been with you and their payment histories and whether they have other accounts with your institution, you can make more informed decisions and identify who is less likely to default,” she says.

Another reason to target existing credit account holders is that they are up to six times more likely to respond than outside prospects, according to both Ross and Williams.

“In some cases we’re getting double-digit response rates,” says Williams. With results like these, this marketing approach pays for itself very quickly, whether implemented by a large national bank, community bank or credit union. “Financial executives see the return on investment and then their question becomes, ‘Why wouldn’t we do this?’”

Consider the case study of a major innovative credit card issuer that faced a series of hurdles: declining revenue in a mature market, escalating costs for account acquisitions, a jump in closed and dormant accounts, and dwindling profitability on existing accounts. “It decided to target existing credit lines by mailing a convenience check pack instead of a traditional check letter,” says Ross. The results? An impressive response rate of 6.1 percent, and an off-thecharts ROI of 1,534 percent!

In this economic cycle, the time is right to offer relief in the form of a month with no payment to credit customers who may be feeling a budget pinch. With the holidays right around the corner, the time is right for skip-a-pay offers that can generate additional fee and interest income for your financial institution and provide welcome relief for your account holders.

The Keys to Success

Ross adds that if you decide to employ an outside marketing services firm to help initiate a credit optimization program, it is important to choose one that has Payment Card Industry (PCI) certification. “Working with a company that has PCI certification helps ensure that your account holders’ confidential credit data is not compromised,” she explains.

Whether you implement such a program in-house or use an external vendor, the key to success is to be highly selective when targeting account holders. Reaching out to fewer people — those account holders determined to be less risky and potentially more profitable — means your marketing expenses will be lower and your return on investment higher. And, while this approach can be used at any point in an account’s life cycle, it is especially useful during the first year. “Industry results have shown that accounts activated within the first 90 days have 50 percent higher balances,” says Ross. (See sidebar, “Credit Optimization: Five Facts You Need to Know,” to help determine if this marketing vehicle is right for your financial institution.)

The last thing anyone wants is for people who are poor credit risks to fall deeply into debt. “That’s why we encourage making the most of your existing creditworthy relationships,” says Ross. “It’s simply about reminding account holders in good standing to use the credit you’ve already extended to them.”

Credit Optimization can help maximize the profitability of your existing credit portfolios, increase retention rates and enhance your competitive standing. It works best when used to welcome and activate new account holders, stimulate ongoing utilization, and improve account retention. To learn more, contact your Harland Clarke account representative, call 1-866-609-8609 or visit