Portfolios Can Gum Up the Mergers Works, Execs Say
Too many merging credit unions disregard credit and debit card portfolios in their merger negotiations and preparations and this can result in needless expense and member problems, according to credit union and CUSO executives.
“Let’s face it, few credit unions merge because of a credit card portfolio,” remarked Stephanie Davis, vice president for member relations at the 72,000-member $685 million First Community Federal Credit Union. “Usually there are much bigger strategic and practical questions on the table if credit unions are talking about merging. But at the same time, cards are such high-touch and complicated products that they really need to be considered earlier in the whole merger discussions.”
By high touch, Davis meant that both debit and credit cards are credit union products that many members use every day or almost every day and that they need to work as seamlessly and simply as possible. At the same time, the products are complicated and involve many different parts of the credit union, and this makes them vulnerable in a mergers, which are usually already complicated and require many separate steps.
Davis and the other staff at First Community know something about these issues. The Parchment, Michigan, based credit union merged two credit unions in 2010 and has recently announced a third merger. In addition, the credit union also converted its core processing system in 2011.
“It was a lot in 2011,” Davis said, noting that although the two mergers were announced in 2010, they really weren’t through the process until well into 2011.
The two credit unions were Education First Credit Union, a 13,400-member, $60 million credit union with a portfolio of 3,600 debit cards and 2,400 credit card accounts, and the 17,400-member $135,000 asset First American Credit Union with a debit card portfolio of 7,500 cards but not credit card portfolio.
First Community is also merging in the tiny Inspire Community Development Federal Credit Union of Battle Creek, Mich.
Converting the card portfolios in one instance became particularly complicated because one of the credit unions used a different card processor than First Community uses and that dictated additional steps and additional cooperation.
“In general, think it’s really important to bring the core processor into the card conversion discussion very early,” Davis said, adding that the core processor plays a key role in how the overall merger and associated conversions are scheduled and sequenced. Additional considerations can include cleaning up the incoming card portfolio to make sure the accounts there are all live accounts as well as looking at processing contracts to see how they handle these sorts of circumstances. Keeping on deadline and maintaining very strong member communication are also crucial parts of the picture, she added.
These last two need special attention because neglecting either one can have very expensive and troubling results.
“People have to commit to their deadlines and meet those deadlines because they’re usually only one step in the process and if they run late that means that everyone down the line is running late, too,” she explained. “Member communications are vital because debit and credit cards are things people depend upon to work. Members need to know when they need to make sure to have new automatic payments set up or when they can switch their old card to their new card.”
There are also the questions about evaluating an incoming portfolio, particularly if there might be some or many cards which the surviving credit union might have underwritten differently or may not have offered. In First Community’s case, there were several credit card accounts which had credit lines which were significantly higher than the credit union’s policies allowed and those members needed to be contacted and the credit question addressed, she said.
Dan Lozier, director of Client Relations for The Members Group, a payment processing CUSO affiliated with the Iowa Credit Union League, agreed with Davis. particularly on the need to get data processors and core processors involved early.
“The key really is planning,” Lozier said, adding that he would bring cards into the merger discussions even before the final decision to merge has been made so that the staff of the particularly surviving credit union can start thinking about the details that were going to need attention.
“Credit and debit cards the way most members interact with their credit union,” he said. And when it comes to mergers, the transfers from one credit union to the other has to be seamless. Your members should come up to you later and mention they were surprised how easily it went, that they hadn’t really realized it was happening. If your members are aware of it more than just getting a new card in the mail, you are probably doing something wrong,” he added.