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HARRISBURG, Pa. – Competition among check vendors, which heated up early this year with big price breaks offered credit union leagues on the East Coast, shows no signs of abating into 2002 as one supplier, Minneapolis-based Deluxe Financial Services Corp. makes a spirited pitch for CU business. The Deluxe move to capture league accounts in Mid-Atlantic and New England states began eight months ago when it debuted a volume-generated package to League service corporations, permitting CU participants to give their members reductions on check orders with claims the savings can run as high as 30%. The latest to join the program-Leagues in Massachusetts, Rhode Island, and New Hampshire-began a formal rollout of the new Deluxe service Sept. 10 through a data processing subsidiary, New England Credit Union Services Corp. of Southboro, Mass. Not to be outdone, two of Deluxe’s major competitors-Clarke American Checks Inc., San Antonio, Texas, and Liberty Business Groups, Mounds View, Minn.-countered by debunking the Deluxe “bundled” strategy as short-sighted for CUs and full of service pitfalls. Reps for a fourth vendor, John H. Harland Co., Atlanta, argue CUs might be better off taking advantage of its profit performance software tool or training packages rather than simply opting for price discounts on check orders. Deluxe, in putting together a league package allowing big and small CUs to combine their orders and receive subsequent price discounts, contends it is trying to rid a perception among CUs that its loyalty favors banks. But Clarke American, which for 15 years has been the endorsed vendor of CUNA and is “the largest supplier of financial documents to credit unions,” argues that CUs opting “for price” are making a mistake in abandoning a vendor like Clarke which, it claims, retains superior service capability on digital printing, “24 by 7″ call center support and other vital services. Similarly, Liberty Business, which also cites its back office support for CUs and is said to own a third of the CU check market, accused Deluxe in its CU bid of “trying to make up production shortfalls” on lost bank business due to high profile bank mergers. “Since our founding in 1986, we’ve seen these kinds of scrambles before from Clarke, Deluxe or Harland when they lose volume and try to make it up with a strategy that creates a perception of low prices for checks,” charged Harry Merickel, vice president of Liberty, arguing also that CUs which opt for the Deluxe plan “will end up paying more for checks later on.” Deluxe, meanwhile, suggested its competitors are suffering a case of “sour grapes” and defends its new “dedicated focus” strategy as consistent with examination of CU needs and a decision “to find ways for credit unions to make it easier to work with us” than might have been the case in the past. “Pricing is just one piece of the puzzle,” insisted Grant Schmalzer, director of marketing for Deluxe, which has its headquarters in the Minneapolis suburb of Shoreview. So far the actual number of CUs signing up for the new Deluxe program appears small with Deluxe claiming only 40 CUs, primarily in Pennsylvania, Maryland, New Jersey, Delaware and West Virginia, opting for a contract. It is understood, however, that up to 60 CUs in those states may have actually signed up with the League service corporation, the Mid Atlantic Regional Service Corp. (MARS), which is based here. A sampling of some pilot CU participants show many like the Deluxe program maintaining they will reduce costs for their members. “We simply decided that we could do a service for our members and save them some money – say on a box that cost $9 it could be reduced to $6.50,” said Cindy Penn, vice president of marketing at the $400 million Point Breeze Credit Union, Hunt Valley, Md. Her CU was one of the early institutions to sign with Deluxe in late 2000 through MARS, the service subsidiary of the Pennsylvania Credit Union League. It was understood MARS was the first League-based group to negotiate with Deluxe on a bundled contract. “The concept is really based on piggybacking the orders of the smallest credit unions with the larger ones, producing a lower price per unit,” explained John Eckes, vice president of membership services for the Maryland Credit Union League, which also is a member of MARS. Robert Hinchey, president of MARS and executive vice president of the Pennsylvania League, said MARS is forecasting 100 CUs will join the Deluxe pact in a year, but he stressed that it is up to individual CUs whether to stay with existing vendors or choose the Deluxe pact. However, CUs have to sign with MARS and Deluxe to get the volume price discount. Similarly, Massachusetts-N.H.-R.I. CUs have to sign with Deluxe and the New England Credit Union Services Corp. to get the price discounts. “We see the Deluxe tiered program as an opportunity for a pricing advantage for our credit unions.” said Paula M. Dion, senior vice president of the Massachusetts League which until a year ago had endorsed Clarke-American as the official check vendor. Like Massachusetts, a number of East Coast and Southern Leagues winning remunerations from vendors have moved away recently from exclusive endorsements of service firms whether it be check processing, credit life or mortgages. The Leagues contend purchase decisions should be left to individual CUs though they keep a watchful eye on performance to protect member CUs. Dion of the Massachusetts League forecast the Deluxe program would benefit CUs “which are experiencing margin squeezes and are eager to cut expenses.” In this way, “they would have the ability to pass these reductions on to their members.” The New England group’s four year contract with Deluxe, she said, sets up a “progressive” formula allowing the first 50,000 of checks ordered at a set price and then a lower price for increments of 100,000. Those prices were not disclosed. New England Credit Union Service handles processing for 325 CUs within a five state area of New England with Vermont and New Jersey also included in the grouping. Both the Vermont and New Jersey Leagues said they opted for the Deluxe program in early summer after being approached by the Minnesota check firm. Russell Clark, president of the 260-member CU Affiliates of New Jersey, said that while strongly backing the Deluxe concept, the New Jersey League has adopted an “open sourcing” philosophy which emphasizes “relationships with many vendors” rather than exclusive contracts. “We want to offer our credit unions as many choices as possible,” said Clark. The West Virginia League issued a formal press release heralding the Deluxe contract and its “unique partnership.” The statement noted that through the MARS agreement, “we have negotiated volume discounts on share draft printing and we feel confident that credit union members can experience significant savings when ordering through Deluxe.” John Revilla, vice president of the Vermont Credit Union League and a former senior executive of Vermont National Bank, said the new interest in CU business by check vendors reflects “the declining check base” as debit cards continue their sharp rise in usage. “People are writing less checks per person, and so these firms are looking for ways to improve their bottom line and come up with innovative approaches,” said Revilla. But two Liberty clients, the $140 million Erie Schools Employees Federal Credit Union, in Erie, Pa. and the $42 million Autoworkers Federal Credit Union in Pittsburgh, claim they are unimpressed with the Deluxe approach. “I went to the Deluxe meetings in Erie, but I saw there was nothing there for me, and others I talked to had the same reaction,” said Norbert Kaczmarek, president of Eire Schools. He said there could be Deluxe problems on printing starter replacement checks and besides “I have a good relationship with Liberty.” Similarly, Mike Pasterick, president and CEO of Autoworkers, said he saw no reason to change suppliers since his CU has been getting good service from Liberty. Moreover, he said, as compared to other vendors Liberty proved itself a vigorous backer of CU causes by putting considerable financial and personal muscle into the Congressional fight over H.R. 1151 three years ago. “Credit unions talk a lot about loyalty, and here is a case where we should prove our loyalty to someone who supports us,” said Pasterick. Timothy Smith, director of credit union strategic marketing for Harland, said while his Atlanta firm intends to remain competitive on price, “our strength is on what really counts-on helping create high performance for credit unions.” In that regard, the company in the last six months has introduced what it calls a sophisticated “peer group” software product in which “we do the number crunching by downloading NCUA call data” with reports circulated to participating CUs. It also offers a “High Performance” computer based training CD program for employees for use at work stations. A CD-Rom, licensed from MyDAS Marketing, covers tutorials on telephone service skills, product knowledge and teller schools. Clarke-American, meanwhile, maintained it was far ahead of any of its competitors-Deluxe included-in “delivering real value” to its CU clients on accuracy “and round the clock service” rather than coming up with the “buying cheap paper with ink on it, ” said Donald Dolan, vice president and general manager of Clarke-American’s credit union division. It pointed to several CUs across the country-as Clarke-American customers- which are finding check ordering a source of significant profits. In one testimonial, as provided to Credit Union Times by Clarke, Arrowhead Community Credit Union in San Bernadino, Calif. said its check area recorded $120,000 in profits as a results of “ close working ties” with Clarke American reps who keep suggest ways the ordering procedure can be streamlined. Clarke reps keep in touch with Arrowhead execs “three or four times a week” to monitor check orders and “this kind of good partnership is serving us very well,” said Stacy Leake, vice president of sales at Arrowhead. [email protected]

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