Beefy wrote: ↑Wed Oct 04, 2023 11:48 pm
Slabenstein wrote: ↑Wed Oct 04, 2023 9:52 pm
Yeah, interest income is part of the income CU's get from their card programs, but only part of it. I can't speak for all CU's, but CU's are not-for-profits, so they're generally not looking to farm their members for interest, since there's no one profiting from the interest who would pressure them to do so. CU profits just go back into the institution for the members, in one way or another: paying for higher deposit rates, lower borrowing rates, more staff, new software or equipment, etc (or even more mundane stuff, like keeping the lights on). I think the manager I was talking to was thinking more along the lines of: if we create a unicorn product and a bunch of people join, reap the rewards, and leave, then a handout to random Redditors probably wasn't the best way we could have spent our members' money.
I think you misunderstood me… fotm cards get applied for milked for everything they are worth but they don’t bring in money for the union.
If the product doesn’t bring in depositors or earned interest then it takes away from the real members as you said even nonprofits are “profit” motivated.
If they're using the cards then they're bringing in money via interchange fees. The question is just whether it's enough when the total losses and gains from a credit card program are considered, which is another part of why the overwhelming majority of credit unions don't offer unicorn cards. Relative to other loan products, credit cards have high losses from defaults (those are the cardholders that cost the issuer money), so the margin to keep a credit card program in the black is pretty thin. Within that margin you have to account for interchange fees, finance charges, and other fees coming in vs. processor costs (most CUs are way too small to run their credit card programs in-house), rewards costs, and other program costs going out. Generally speaking, if you're a CU, you're going to want to have a rewards structure that lets your credit card program operate without a net loss (so, for most CU's, probably not a 3% or even a 2% card), but the cost of that rewards structure and the interest paid by your members who revolve balances are only two parts of the equation.
I think most CUs are probably "continue to exist" motivated, rather than being "profit" motivated. They want to provide their members with financial services, so they'll price according to the path they've chosen to be able to continue to do that, but since they don't have a private owner or shareholders, there's no one they would be trying to generate a profit for.