Better Card Performance Is Leading Some CUs Back to Issuing
Card processors and experts who are fielding calls from credit unions on the topic said former credit union issuers are not flooding in to restart card programs but added that there is a definite trickle of interest they have only seen grow as more time has passed.
"I would characterize [the phenomenon] as member driven," said Ondine Irving, owner of Card Analysis Solutions, a CU card portfolio consultant. "From what I have heard from CUs which have attended my card schools or been consulting clients, they are getting back into issuing because their members are demanding they do it."
The numbers for credit unions that would find the reissuing option of real interest can be hard to assess.
Overall, Asset Exchange, a CU card portfolio consultant, owned by Fidelity National Information Services, reported that from 2002 through third-quarter, 375 CUs with card portfolios worth more than $1 million sold them. They declined to report how many sold them to banks versus card processing CUSOs, but card analysts said that it may be less likely that a credit union that sold its portfolio to its league or CUSO would be as interested in getting back into issuing.
Irving said she sensed that part of the CU interest in starting to issue credit cards again came from member dissatisfaction with current issuing partners.
"The unfortunate fall out from the onslaught of sales in 2001 and 2003 of these portfolio sales was the member impact was so often overlooked and the fact the only options during this period was to sell to a bank," Irving said. "I have heard first hand of service complaints, higher rates and fees, minimum finance charges and 20-day grace periods. In spite of the current economic downturn, this is a prime time for credit unions to be taking care of their members, especially in the credit card arena."
Card processors report that they too are seeing increasing interest from former credit union clients that want to get into issuing.
Card Services for Credit Unions, the association for CUs that process their card transactions with FIS, said they had been contacted by credit unions interested in coming back into issuing again and that they are helping some work through the issues surrounding a return to the card market.
These issues include some legal questions, such as whether and how a CU can market its newly issued cards to members who still hold cards issued by its former issuing partner. Also, in question is how the credit union can best structure the management of its new portfolio.
PSCU Financial Services, the payment processing CUSO for more than 500 credit unions, said that it too has had calls from former CU clients wanting to get back into card issuing. PSCU spokesman Merry Pateuk said that the CUSO is working with roughly half a dozen credit unions that want to start issuing again.
Chuck Fagan, chief sales officer for the CUSO, works with the credit unions returning to the game. He said most have come back because they have missed the connection a credit card program allowed them to have with their members.
"In addition to being profitable, credit cards are a very sticky product for credit unions and their members," Fagan said. "The credit unions which sold their portfolios and are coming back found they missed that."
But once they decide to come back, Fagan said, the CUs faced challenges. There is the challenge of rebooting a credit card program and re-marketing it to the CU's members. Another is working in the different current card market, one that is more consolidated than the one they left, usually about five years ago. Often, some of the very personnel that used to run the CU's old program have moved on, and there is a staffing gap.
In one sign of the increasing trend, card processor CMC and NAFCU Services Corp. are jointly offering a series of Web events aimed at credit unions considering returning to card issuing. CMC is one of NAFCU's preferred partners.
The series of seminars will answer some basic questions about how to do it, both from the legal perspective of what they might be allowed or not allowed to do by their contracts with existing card-issuing partners, as well as practical questions about how to start a card program from scratch, according to David Frankil, president of NAFCU Services.
"With the outsourcing and technology options available today, re-entry into the credit card market is actually within every credit union's capability," Frankil said. "Given the opportunity in today's market, this is more important than ever."