The lists of credit unions that had previously sold their card portfolios to banks only to come back into issuing again grew last week as the 60,000-member $1 billion Eli Lilly Federal Credit Union converted a card portfolio that it had previously sold to a bank back to its own systems again.
The Indianapolis-based credit union had sold its 6,800-card $20 million portfolio to MBNA in 2002.
“We sold it at the time because we didn't believe we had the expertise we needed for card issuing,” explained Rich Jones, senior vice president with the credit union. “But in the year's since we decided we wanted to buy it back and offer the member service we believe our brand needs to have.”
After the MBNA sale, Eli Lilly watched as MBNA merged with Bank of America and became FIA, Bank of America's card issuing division. Under the terms of the sale and agent issuing agreement, the credit union entered into a agent issuing program on a five-year term and stuck with it through the 2007 renewal. But it had already decided not to renew the deal past 2011.
“About that time, Bank of America decided to leave the affinity card market, so it worked out,” Jones said, adding that the credit union had to negotiate with the bank to buy the portfolio.
Bank of America wanted Eli Lilly to accede to the bank selling the portfolio to Elan Financial Services, the affinity card issuer which is a subsidiary of U.S. Bank, but Jones said Lilly wanted no part of an affinity agreement that was going to put one of its products in the hands of another large bank.
“We had just been hearing more and more about how large bank issuers had been treating their cardholders and decided we just didn't want to take any more of those sorts of risks with our brand,” Jones explained.
Jones reported that the portfolio had not changed all that much during the decade it had been with Bank of America. It had consisted of about 6,800 cards when the credit union sold it in 2002 and was about 6,800 cards when Eli Lilly bought it back in 2012.
It had changed in a couple of ways, however. First, some MasterCard and American Express cards had crept into the portfolio as well, and all those accounts were became Visa accounts during the conversion.
Second, Jones said Bank of America had also apparently ignored Visa's criteria for which cardholders were eligible to have a Signature card, the brand's luxury card platform. Usually, there were requirements for income and spending level that go with the platform, but, apparently, almost all of the Eli Lilly cardholders had Signature cards.
Jones said Lilly would not downgrade any of the existing Signature card holders but would begin to underwrite Signature card applications in accord with Visa standard on any going forward.
“We look forward to launching a platinum and other card platforms in the future,” Jones said.
Jones said buying the card portfolio had been a challenge since it meant Eli Lilly would go from having no card program at all to having a $20 million portfolio overnight. But he added that the credit union had been training staff on card management and taking particular care to learn how to do it right and keep expenses down.
Among other things, Lilly had sent staff to credit union management schools, such as the one offered by Ondine Irving, founder and CEO of Card Analysis Solutions. Irving is a staunch advocate of credit unions issuing their own cards or, if they have to, partnering with a CUSO to issue. Irving reacted positively to the news that Eli Lilly was returning to card issuing.
"The fact that credit unions are returning to the card issuing business is music to my ears,” Irving wrote in an email. “There have been numerous negative experiences from credit unions that outsourced their credit card programs in the past to banks, including member dissatisfaction. The credit union is doing the best thing for their members and the credit unions bottom line. It is great to see a credit union such as Eli Lilly realize this tremendous opportunity to better serve their members and maintaining control of the complete member relationship.”