Kristi Edgar Dean Knudtson

INCOME BOOSTER: USE YOUR CARD PROGRAM TO DRIVE RESULTS!

Kristi EdgarVP, Marketing & Communications

Tenured with American 1 Credit Union since 2002 $280M in Assets, 51,000 members Oversees Marketing and Sales Strategies Member of Executive Team Credit Card Portfolio of over 15K accounts Debit Card Portfolio of over 31K accounts

DEAN KNUDTSONSr. Portfolio Consultant

Over 30 years experience in the credit/debit card business Managed $600M card portfolio at BECU Regional Vice President, Western States Bankcard Assn.

(WSBA) Responsibilities included:

Development of enhanced card products Grow penetration, activation and overall profitability Develop and manage merchant services offering

Agenda

Interchange History Rewards Durbin Effect

Growth in the Real World American 1

Fees is not a 4 letter word To charge or not to

charge, that is the question!

Definitions

Q & A

INTERCHANGE 101

Interchange, What is it?History

Participating issuers realized significant fraud losses

Pre-Approvals

Mass Mailings

Deceased individuals, pets, children

Anyone breathing (or not) got a card

Then, come the Enhancements Cash Back Points Based Rewards Visa Incentive Network = 11 bps MasterCard Enhanced Value Program Higher Interchange Rates Based on Card Type, MCC and Card

Presentment

Business Cards Average 230 bps

Affluent Products Average 190 230 bps

Interchange, What is it?

There is an expense associated with any rewards program

Merchants to share in the cost Benefit to Them: Higher Average Ticket, More Spend Benefit to Issuers: Higher Usage, Higher Revolving Balances, Higher

Interchange

Typical lift CPS Retail 1.51% plus $0.10 per item CPS Retail Rewards 1.65% plus $0.10 per item Plus VIN 11 bps CPS Supermarket 1.22% plus $0.05 per item CPS Supermarket Rewards 1.65% plus $0.10 per item Plus VIN 11 bps CPS Restaurant 1.54% plus $0.10 per item CPS Restaurant Rewards 1.95% plus $0.10 per item Plus VIN 11 bps

Interchange, Rewards

Business Cards Higher Interchange due to lack of Revolving Balances Average 230 bps for Visa/MasterCard Business BINs Corporate and Purchasing Cards 240 295 bps

Affluent Products Visa Signature, Signature Preferred MasterCard World, World Elite Richer Rewards Requirements Enhanced Service Standards

Interchange, Business and Affluent

this guy

Important what it is Regulated Debit vs. Non Regulated Debit Signature Debit vs. PIN Debit Merchant Routing Capability PIN Less Debit

Important what it is NOT Credit Not Included Yet

Durbin Amendment

Interchange, Debit PIN based debit introduced late 80s Cost based on processing/settlement expense Initially adopted by supermarkets, but expanded

to other retail segments Raised concerns with Visa and MasterCard so

Interchange, DebitSignature Debit

Debits cardholders account just like PIN based Rides the Credit Rails Interchange significantly higher than PIN

Signature Debit Average 127bps or $0.47 per item PIN approximately $0.35 per item

Signature in jeopardy however.

Merchants can re-route signature debit over PIN network if under $50.

Regardless of what cardholder chooses Average savings/loss of $0.24

for exempt FIs per transaction Impact

Loss of interchange revenue Member reward programs Unhappy cardholders -----------

What should Credit Unions do? Member education Relook at reward programs

for debit Evaluate EFT Network relationships

PIN-less Debit Merchants Dirty Little Secret

Dear ,

Kroger is dedicated to ensuring that your transactions are as safe and secure as possible. If you make purchases using your chip-enabled debit or chip-enabled credit card, here's what you need to know about the extra security measures we've put into place to better protect you:

Kroger now requires that you use your secure PIN to verify debit chip card transactions. You can no longer run your debit card as credit.

Some financial institutions may require a secure PIN to verify your credit chip card transactions as well. If a PIN is required, you'll no longer sign your name to verify your purchases.

Kroger made the decision to require a secure PIN for debit chip card purchases. It's the most secure way to verify that you are you. A signature can be forged, but requiring a secure PIN makes it more difficult for stolen or counterfeited cards to be used in our stores.

Two layers of protection are better than one. Entering your PIN is an extra layer of security for you, on top of chip-card technology.

Your security is our primary concern. Our goal is to reduce fraud and protect your information. Kroger never sees your PIN number, which is instantly encrypted and sent to your financial institution once you enter it.

You'll need to know your secure PIN for debit card purchases. This may be the same PIN you use for ATM transactions.

To find out if a secure PIN is required for credit chip card transactions, you should contact your financial institution.

If you're using a corporate or business credit chip card, there is a higher probability that your financial institution will require a secure PIN.

Kroger continues to honor all major credit and debit cards.

MCC rates differ by several factors Rewards vs. Non Rewards Modify spend patterns by promotions Introduce Business (if allowed) Consider Affluent product Migrate Debit to Credit Market to all Segments

Grow your Interchange!

FEE REVENUE

Unlike many financial institutions, we do not issue stock, or pay earnings dividends to outside stockholders. Instead, earnings are returned to members in the form of great rates and lower fees. We are less likely to charge service fees than for-profit banks, and when we do charge, fees tend to be lower.

Source: BECU

Quote

Annual Fee/Enrollment Fee Anniversary, sometimes waived

w/conditions Or one time

Application Fees Late Fees

When are you assessing, and how much Sometimes limited by regulatory

agencies This is the most common MISSED

opportunity

Common (and some, not so) Fees

Over Limit Fees Pretty much a thing of the past since the

CARD Act If you have agreed to permit over limit

charges, you generally can be charged a fee of up to $25 the first time you exceed your credit limit and a fee of up to $35 if you are over your limit a second time within six months. However, the fee cannot be larger than the amount by which you exceeded your credit limit.

Source: consumerfinance.gov

Common (and some, not so) Fees

Foreign Transaction Fees Recoup fees passed by Associations

Cash Advance Fees Very common, and we can compete

Balance Transfer Fees ?

NSF/Returned Payment Fees Penalty Fee

Common (and some, not so) Fees

Skip A Payment Member initiated

Statement Copy Card Replacement Rush Plastics Live Agent Pay by Phone

Common (and some, not so) Fees

Fee Summary We have to be of the mindset that we can

compete, remain true to our mission, and charge fees for our products and services

Late Fees are the greatest source of fee revenue, when assessed correctly. When do you charge a late fee?

Incent desired behavior with lower, or no fees, penalize negative behavior with higher, yet competitive fees

Disclose properly

GROWTH IN THE REAL WORLD

Presented by: Kristi Edgar

VP, Marketing and Communications

About American 1

Based in Jackson, Michigan since 1950

$280 Million in Assets

53,000 members

2015 ROA - 1.91%

2015 Net Worth - 16.67%

Our culture Lending Focus: Auto Loan Credit Card No mortgages, business loans

and no participation in indirect

Sales Culture = Success

Chart1

0.4510056813

0.3027056421

0.1522072127

0.0726084573

0.0214730066

Non-Interest Income2015

Graphs

Graphs

0.4510056813

0.3027056421

0.1522072127

0.0726084573

0.0214730066

Non-Interest Income2015

Data

2012201320142015

Interchange$ 2,649,423$ 2,887,394$ 3,156,410$ 3,376,951

2012201320142015

Credit Life/Credit Disability$ 1,280,357$ 1,370,876$ 1,472,660$ 1,698,007

2012201320142015

GAP & MBP$ 295,305$ 445,297$ 722,875$ 810,012

Claims Paid

2012201320142015

Credit Life/Credit Disability$ 1,288,341$ 1,392,091$ 1,444,738$ 1,174,548

2012201320142015

GAP & MBP$ 162,171$ 254,214$ 407,365$ 560,994

2015 Non-Interest Income

Fees & Charges45%$ 5,031,370

Interchange30%$ 3,376,951

Credit Life/Credit Disability15%$ 1,698,007

GAP7%$ 810,012

Other Misc Operating Income2%$ 239,551

Total Non-Interest Income100%$ 11,155,891

GAP & MBP

GAP & MBPRevenue

2012

2013

2014

2015

295304.5

445296.5

722875

810012.22

Interchange

2012

2013

2014

2015

2649422.94

2887394.14

3156409.98

3376950.8

Credit Life/Credit Disability

Credit Life/Credit DisabilityRevenue

2012

2013

2014

2015

1280357.46

1370875.97

1472659.87

1698007.38

Credit Life/Credit Disability

Credit Life/Credit DisabilityClaims Paid

2012

2013

2014

2015

1288341

1392091

1444738

1174548

GAP & MBP

GAP & MBPClaims Paid

2012

2013

2014

2015

162171

254214

407365

560994

Non-Interest Income2015

Fees & Charges

Interchange

Credit Life/Credit Disability

GAP

Other Misc Operating Income

0.4510056813

0.3027056421

0.1522072127

0.0726084573

0.0214730066

Data

Credit Life/Credit Disability

Credit Life/Credit DisabilityClaims Paid

GAP & MBP

Credit Card

Credit Card Program

36% Member Penetration

22% of Total Loan Portfolio

Automatically Propose Credit Card

Keep it Simple!

Debit Card

Debit Card Program

50% Member Penetration Average 900,000 Transactions

Monthly Debit Offered on Simplicity Checking

and Savings Account

Four Steps to Sales Success

Develop quality products that the team is proud to

offer.

Build a sales culture that our team wants to be a part of.

Ensure the sales team hasmarketing support.

Reward top sales people.

Product Development

Research, Research, Research Focus Groups Product Comparison Rewards Program

Marketing Support

Marketing must match sales goals Comparison booklets Members tell the story

Recognize your stars

Build incentive program to support sales goals

Share sales success stories Track and measure goals daily

QUESTIONS?

Kristi Edgar Dean Knudtsonkedgar@a1cu.org Dknudtson@cscu.net

(517) 787.6510 (888) 930.2728 x 384

THANK YOU

mailto:kedgar@a1cu.orgmailto:Dknudtson@cscu.net

Income booster: Use your card program to drive results!Slide Number 2Slide Number 3AgendaInterchange 101Interchange, What is it?Interchange, What is it?Interchange, RewardsInterchange, Business and Affluentthis guyDurbin AmendmentInterchange, DebitInterchange, DebitSignature Debit PIN-less Debit Merchants Dirty Little SecretSlide Number 15Grow your Interchange!Fee RevenueQuoteCommon (and some, not so) FeesCommon (and some, not so) FeesCommon (and some, not so) FeesCommon (and some, not so) Fees Fee SummaryGrowth in the real worldSlide Number 25About American 1Our cultureSlide Number 28Slide Number 29Slide Number 30Credit Card ProgramSlide Number 32Slide Number 33Debit Card ProgramSlide Number 35Slide Number 36Slide Number 37Slide Number 38Slide Number 39Product DevelopmentMarketing Support Recognize your starsQuestions?Thank you