Despite a persistently struggling national economy and a local economy that has performed even more poorly, North Island Credit Union is reporting success with an effort to get back into card issuing.
The San Diego credit union had left the business in 2001, selling its card portfolio to the First National Bank of Omaha, one of the earliest banks to buy credit union card portfolios and continue to issue their cards through agent-issuing agreements.
“At the time, it seemed like the right decisions as we were going with a new core processor, which could not have handled credit card transactions,” explained Bret Johnson, credit card manager for the credit union. North Island had chosen the core processor in order to add business account and lending capability, more than doubling its line of business, explained Kelli Beck, vice president of marketing .
“The premium that the portfolio brought at the time also helped sweeten the sale,” Johnson acknowledged.
And unlike other credit unions that sold their card portfolios and later found that the levels of service their members received from the new card issuers fell far short of the credit union’s standards, Johnson and Beck reported that First National provided its members with good service while in the agent-issuing relationship.
North Island had only decided to get back into issuing again after deciding it needed to have control over such a profitable loan product and concluding that it wanted to control more of the card underwriting.
But North Island faced a couple of hurdles to getting back into card issuing. First, the contract with First National carried a non-compete agreement that stretched for 10 years past the portfolio sale date and effectively blocked the CU from getting started until 2011.
The second hurdle was the card issuing business had substantially changed in the intervening decade, and North Island lacked the expertise in card portfolio management that it once had. Like many credit unions getting back into the business, North Island hired a payments CUSO, The Members Group, to help it develop and manage the new accounts.
“We chose to outsource parts of the portfolio management because we saw there were elements that we could and should control and operate and other parts of the process that we didn't have the expertise,” Johnson explained. “Partnering with TMG let us pick and choose which parts of the process we wanted to control.”
So far, the partnership and launch have gone well. The CU officially rolled out the new card offering to its 83,000 members in June 2011 and has opened 800 new accounts and grown the balances to $1.7 million. Johnson acknowledged that the number of accounts opened had lagged, reaching only 60% of North Island's goal, but said that the value of the account balances had significantly outperformed expectations.
The numbers of members with significantly degraded credit scores may be limiting the card portfolios growth, Johnson explained, adding that North Island has been declining fully 50% of its card applications due to credit concerns.
Beck explained that North Island had not sought to compete with First National's card head to head as it did not know which of its members still held the old card, but the credit union had offered a balance transfer promotion on its new card, a rewards platinum card, with an additional 1,000 point bonus for first use. The CU has also made use of its a classic card design which is very popular and well-recognized among members to help market its card, Beck said.