Two Pillars of CU Card Industry Began in Conflict but Later Prospered
In its first issue, Credit Union Times covered a conflict that resulted in the creation of two pillars of the credit union card world that are still around today.
From about 1988 to 1993, one of the first credit union service organizations set up to process credit card transactions was involved in a complicated and bitter conflict over who its card processor was going to be, which direction it should go in, what services it should perform for its members and how it should be structured.
Payment Systems for Credit Unions (now PSCU Financial Services) began in 1977 as a CUSO serving credit unions primarily in Florida. The CUSO existed to help credit unions outsource many of the back office duties surrounding issuing credit cards, a relatively new product to many CUs at the time. By the late 1980s, the number of credit unions that were members of the CUSO or using its services had climbed to more than 800, according to PSCU CEO David Serlo (who was CEO then, too) and other contemporary sources. The CUSO processed roughly 2.2 million card accounts.
Payment Systems' card processor at the time was Telecredit, a Los Angeles-based company that had been a pioneer in the check verification and later card processing business. Telecredit later on became Equifax, later still Certegy and most recently FIS. Telecredit processed checks for the credit unions through an operations center in Tampa, Fla., where the CUSO also had its headquarters.
The CUSO leadership and a number of member credit unions had long had a vision of where the CUSO could go and what it could do for member credit unions, Serlo said. For example, the CUSO wanted regional operations centers that could handle CU credit card calls and offer member CUs credit card training closer to their headquarters. That was not possible with one operations center in Tampa, Serlo said, and it was not clear Telecredit shared the CUSO's goals.
There were also questions about pricing and independence and, most of all, ownership. Members of the CUSO wanted to own a piece of Telecredit's processing of their credit card charges and Telecredit backed away sharply from that idea.
So, the CUSO hired an outside consultancy and accounting firm to study the situation and identify the processors that could offer the CUSO the services and pricing it sought, Serlo said. The study led to a request for proposals from card processors, and First Data won.
"In the end it came down to two, Telecredit and First Data and, in our judgment, Telecredit couldn't offer us the same things that First Data did," Serlo said. The decision was made: Payment Systems for Credit Unions and its more than 800 member CUs would convert to First Data's card platform.
But Serlo and the CUSO faced a problem. Not all of the CUSO's credit unions had been kept abreast of the change and the reasons behind it, and, according to press accounts from the time, Telecredit launched a marketing effort to dissuade member CUs from making the switch.
"Looking back on it, I think we could have done a better job in communicating what we were doing and why," Serlo said. "We were making a strategic decision and those are often the hardest to explain."
It took years to get all the credit unions to either convert to First Data's platform or renegotiate contracts with Telecredit or another processor. In the end, about 55% of the more than 800 credit unions that were part of Payment Systems, representing roughly 1.2 million accounts, ended up leaving the CUSO to keep Telecredit as their processor, Serlo and other sources said. About 22% of the CUs, representing roughly 800,000 card accounts, opted to stay with the CUSO and have First Data as their processor. The remaining 23% opted to process their cards themselves or with another processor.
When the dust finally settled, the credit unions that chose Telecredit organized themselves into their own trade association, Card Services for Credit Unions. Thus, two pillars of the credit union card industry were born-and leaders of both organizations agreed that, in the end, credit unions wound up well served by both.
Since the split, the number of credit and debit card accounts PSCU processes has climbed from 800,000 to 14 million, Serlo said. The CUSO has branched out into a wider variety of products and services in order to help keep its member credit unions up to date on technology and servicing card accounts, he added.
CSCU President Robert Hackney, who did not work at a credit union during the controversy, agreed with Serlo that the competition between the two organizations and the two processors had worked to credit unions' advantage. He also said it was ironic that the organizations ended up offering their members and processing companies some of the same benefits, namely better pricing and being able to deal with the processor as a group.
"When it comes right down to it, the card business is a volume business," Hackney said, adding that both organizations are able to leverage their size to get their member CUs better deals.