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ARLINGTON, Va. – MBNA, the Delaware-based firm which claims to be the world’s largest independent credit card issuer and is a leading purchaser of credit union credit card portfolios, has established an advisory board of credit unions to help it better understand and service its growing list of credit union agent partners. The board consists of seven credit unions that have entered into agent relationships with MBNA by selling the firm their credit card portfolios and which have been invited to give the firm feedback about its credit union program. “We have decided to apply an approach that has worked in other industries in which we are building relationships to credit unions,” said John Zavoyna, executive vice president for MBNA and the executive responsible for much of the firm’s credit union program. Because MBNA has specialized in agent relationships with a wide spectrum of groups and industries, Zavoyna explained, it has long established advisory boards to help it manage its relationships with those groups. A Group For All Occasions “For example, we have an advisory board for university and alumni groups with whom we have agent relationships,” Zavoyna said. He also cited the examples of boards made up of medical professional groups with whom the card issuer has agent relationships, boards for non-profit groups, sports booster groups etc. “There is no one size fits all approach to the details of service and marketing,” Zavoyna said. The decision to establish the board grew in the last year, Zavoyna explained. MBNA established agent relationships with credit unions in the more distant past, Zavoyna said, but they were usually handled merely as other financial institutions, like community banks. However, about two years ago MBNA began to really focus on credit unions, Zavoyna said, and as the increased attention brought about an increased number of agent relationships the need for an advisory board became more acute. According to Zavoyna, MBNA has entered into agent relationships with over 40 credit unions around the country in those two years, and is on track to add another 10 or so before July of this year. “For whatever reason, we are attracting a lot of attention from credit unions that are looking for partnering relationships in managing their cards,” he said. In addition to the credit union executives, Zavoyna is a regular attendant at the meetings, along with Steven Fuld, senior vice president with Boston-based Kessler Financial Services, the firm MBNA often uses to evaluate and acquire credit card portfolios. Participants are not paid for their service on the board, nor does the firm pick up their travel expenses. However MBNA does pay for their lodging portion of the trip, according to Fuld. “We based our compensation plan for the board along the model that credit union firms, such as PSCU Financial Services use,” Fuld said. The advisory board is just getting started, and given the frequently high emotions that accompany the issue of credit unions selling their card portfolios to banks, a few of the credit union executives on the board said they had some initial reservations about participating. CEOs Take to New Board In broad terms the credit union executives reported two benefits to being on the advisory board. First, working on the MBNA group has helped them raise issues to MBNA that need to be addressed and which they might not have been as able to see addressed if they did not participate and, second, they have helped MBNA tailor its service to credit union sensitivities. “For example, one of the issues we raised with MBNA was the issue of paying credit card bills in the branches,” said Jim Delyea, marketing director for the $664 million Xerox Federal Credit Union based in El Segundo, California. Xerox had sold its portfolio to MBNA in June of 2001, he explained, and one of the issues that arose was cardholders’ ability to pay their credit card bills in the credit union branches. “A number of our members were used to paying that way and they missed it, but that was not possible with MBNA,” Delyea said. “So we raised that issue to MBNA and it looks like it has been fixed,” he added. Although the details have not been finalized, it appears as though MBNA has arranged for credit union cardholders to be able to pay their credit card bills, at MBNA’s expense, through a check service at the branches, the executives said. Chris Hartung, chief financial officer with Alliance Credit Union, a $366 million institution based in San Jose, California admitted that his institution is the newest one on the board, having sold their portfolio to MBNA in July 2002. Hartung said his institution had joined the board, in part, to enjoy the access board participation would give to MBNA leadership. “I mean, generally speaking we have sold the portfolio already. MBNA is a big firm, they don’t have to listen to us. Joining the board helped us get our messages through,” said Hartung. Some of the messages that have gotten through have included ways to help MBNA grow the institution’s card portfolio, Hartung said, via direct mail and other communications. This is good for Alliance because the credit union gets a percentage of the card’s interest income and a small premium for each new account opened. Ken Facer, senior vice president for the $728 million Arrowhead Central Credit Union, said Arrowhead has gained as much benefit from communicating with other credit unions in agent relationships with MBNA as it has from communicating with the Delaware-based bank. “It’s that comparison of experiences, sharing common problems, that is really valuable to us,” he said. Some of the issues that the advisory board touches upon can be fairly sensitive, the executives agreed. Several brought up their initial concern with an MBNA repricing plan for its cardholders that they referred to as “the treadmill.” In this policy, MBNA would examine credit reports and scores for incidents of late payments on any cards, not only MBNA cards, and if the late payments were found the firm would raise the interest rate on the member’s card. “We got together and pretty much made sure that they understood that this was not going to fly with our members,” Delyea explained. “We told them that our members would expect to have their rates go up if they paid late on MBNA’s cards, but not on their cards generally,” he added. “And they took a look at it and changed the policy,” he said. The executives freely acknowledged that MBNA undoubtedly gained information it could use to market its agent relationships to other credit unions, but all pointed out that being able to have a greater degree of input into the relationship ensured it was a better relationship for their institutions as well as other credit unions that might come after them. For its part, Zavoyna said that if good marketing information came out of the advisory board, then that would be all the better. But he denied that the advisory board had marketing as its primary purpose. The existence of the advisory board indicates that MBNA takes its partnerships with credit unions very seriously, explained Zavoyna. The model is to work with credit unions to actively service and grow their branded credit card portfolios, he added. [email protected]

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