2008: The Credit Card Odyssey to Better Management Begins to Pay Off
According to the latest 2008 data, roughly 2,100 federally insured credit unions have credit card portfolios worth more than $1 million and an additional 2,000 have card portfolios worth less than $1 million. These numbers have been roughly the same over the last few years.
What changed in 2008 was that credit unions' appreciation, valuation and better management of their portfolios began to show sustained results. As the card portfolio performance grew, the inclination among credit unions to sell the portfolios dropped off sharply.
Credit union card experts credit the shift, in part, to the market for buying card portfolios. Having large bank issuers, such as the then-MBNA (now Bank of America-affiliate FIA Card Services) and InfiCorp, offer large premiums for CU card portfolios woke credit unions up to the value of the card portfolios, the experts said.
The banks that purchased card portfolios also inadvertently taught credit unions how to better manage their own, the experts explained. Card management techniques that had long been routine among the larger card issuers-such as risk-based pricing, reviewing and increasing credit lines and converting to higher value card platforms like platinum Visa cards-were relatively rare among credit unions and left them with underperforming card assets, the experts said.
For example, according to Card Services for Credit Unions, card income per account for their member CUs in 2003 lagged the industry by $775, leading them to believe they could not really compete in the card arena.
CSCU, Fidelity National Information Services, PSCU Financial Services and others rejected that suggestion. Instead they began to educate credit union card executives about what their card portfolios are really worth and how to better manage them.
This past year was the one where that awareness and training really began to bear fruit. As of the end of the third quarter, the last for which the NCUA has data, the CU card portfolio growth hit 12%, a figure that many credit union experts previously had dared imagine.
Additionally, the number of card accounts, a lagging indicator for credit unions' card portfolios, also grew by 2%, according to the NCUA data analyzed by Asset Exchange, a card consultant and brokerage owned by FIS.
Further, CU credit card assets increased to become almost 5% of credit unions' overall assets, another signal of improving card performance.
The changed credit union attitude toward credit cards and card management has essentially shut down the market for CU card portfolio sales. For example, in the third quarter of 2007, an already waning market for CU card portfolios still saw 14 CUs sell their portfolios worth a total of $40.3 million, according to card broker analysis. But in the third quarter of 2008, only five credit unions with portfolios greater than $1 million sold their portfolios, worth a total of $13 million.
CU card experts point out that improved CU card performance is not the only reason the market for CU card portfolios have changed. Bank of America's purchase of MBNA changed the organization's focus and took it largely out of the market for CU card portfolios. In addition, some credit unions that previously sold their card portfolios and entered into agent-issuing agreements with their purchasers declined to renew their agent contracts when they expired and have returned to issuing.
In addition, as some of the bank card purchasers, like MBNA/FIA and InfiCorp, left the market, others like CUSOs or large credit unions stepped in. This development further discouraged bigger bank issuers, the experts said. Even though the CUSO or other credit union would sometimes not offer the same high premium for card portfolio, the fact that they were credit union-owned and shared the credit union philosophy gave credit unions considering making portfolio sales an increased feeling of trust.
According to the experts, credit unions are much better positioned in their card programs now than they were three or four years ago, but there is still room for improvement. Some CUs have not learned to better market and manage their credit card programs; some credit unions have not yet implemented risk-based pricing or ongoing reviews of credit lines.