What the Crowded Credit Card Processing Field Says About CU Credit Cards
Anyone with doubts about the long-term viability of credit union credit cards need only look at the numbers and variety of credit card processing firms which have come to compete for credit union business.
With the news of the BancVue/TSYS partnership, credit unions have at least six card processing vendors from which to choose: BancVue/TSYS, TSYS on its own, CO-OP Financial Services, FIS, PSCU Financial Services, The Members Group, and Jack Henry Payment Processing (formerly Pemco). And this does not count credit union leagues that offer their member CUs card processing packages or the numbers of core processing firms that also offer the service.
Now, all these organizations offer different products and services with different advantages and disadvantages and I will not endorse anyone's claim to be the best. But I will point out they share two common beliefs. First, credit unions will continue issuing credit cards and, second, that CU card issuing will continue to be significantly profitable. It's the second belief that is particularly important just now.
Why? Because credit cards today stand at the exact junction between credit unions' need to make loans and Americans need for a reasonable and affordable path out of the financial mess they have collectively gotten themselves into over the last 10 or 15 years.
The economic news from CUNA, NAFCU and the NCUA could not be clearer. Credit union loan growth stagnates because the vast majority of Americans have lost their appetite for additional borrowing, no matter the interest rate. A low interest rate on a new loan is irrelevant if you are so busy throwing every available dollar at the loans you already have that the thought of taking on any new debt is impossible. Welcome to what some economists have taken to calling the Great DE-leveraging; it will take three to five years for the majority of American households that still have jobs to pay off existing loans before they finally might feel comfortable taking on any new debt.
To make money in the Great DE-leveraging, credit unions must accomplish two things. They have to find members who have both the appetite and the qualifications for new borrowing, and offer members already paying higher cost debt the sorts of loans they can use to lower it.
The product best positioned to meet those criteria is the CU credit card. One or even two reasonably priced credit card accounts at a household struggling to lower its debt load could make the difference between their having a three-year, teeth-clenching fight to get out of debt and a two-year moderately difficult struggle to make the same financial goals. Further, credit unions that offer their members the cards to help achieve that goal will earn their member's loyalty and first preference when the time finally arrives when they want a new car loan, education loan, home improvement loan or mortgage loan.
Credit unions have a choice. Will they be victims of what may be the defining American economic trend of a generation, the 21st century's equivalent of the Great Depression, or will they be participants in its correction?