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WILMINGTON, Del. – MBNA, the card issuing giant and leading purchaser of credit unions’ credit card portfolios, has begun to offer access to American Express Cards as part of its pitch to get credit unions to part with their card portfolios. “With us it was really a matter of the marketing bells and whistles that MBNA was able to offer,” said Jay Curtis, CFO for the $422 million First Credit Union, headquartered in Tempe, Arizona, “and one of those bells and whistles was the ability to offer our members a card with the American Express logo.” First CU confirmed the sale of its $34 million card portfolio to MBNA on August 16. Boston-based Kessler Financial Services, the card advisory firm that often works with MBNA, arranged and settled the sale. “We know that many credit unions reject outsourcing their credit card product out of hand. First Credit Union completed a thorough evaluation – once the team at First Credit Union took a look for themselves they realized what the benefits can be, especially in times where future uncertainties exist,” said Steven Fuld, senior vice president with Kessler. “One of the keys for First Credit Union was the ability to add a First Credit Union branded American Express product to their suite of offers.” Kessler also acknowledged that First CU was not the only credit union the AMEX card offer made a difference. For in mid June, the $1.3 billion Texans Credit Union sold its $53 million card portfolio to MBNA, a deal that Kessler said also included an AMEX component. “We didn’t really play up that aspect of the deal,” said Fuld, “but it was there.” The possible addition of American Express cards to MBNA potential offerings has added a wild-card to the very competitive market for credit unions’ card portfolios, and one whose impact many card executives say remains unclear. Obstacles to Credit Union Amex Cards While the revelation of MBNA’s American Express offer marked yet another significant turn for the competitive card portfolio market, it’s uncertain what the move will really mean in the long run for a number of reasons. First, it’s unclear that MBNA will really be able to offer the ability to issue American Express Cards to its credit union partners. VISA and MasterCard’s current regulations prohibit their card issuers from offering American Express. The U.S. Justice Department has taken VISA and MasterCard to court about the rule, alleging that it violates Federal anti-trust laws. The Department has won both the original case and the first two appeals, leaving VISA and MasterCard to appeal their case to the Supreme Court. As a VISA and MasterCard issuer, MBNA stands bound by the two associations’ bylaws. Nonetheless, the company and American Express announced an exclusive agreement in January 2004 that would allow MBNA to issue American Express credit cards, a notably different product for most of the American Express brand. While American Express has several revolving credit products that it offers through its Centurian Bank, the backbone of the company has been its familiar charge card whose balances cardholders have had to pay off each month. The MBNA issued product will be a credit card, one for which cardholders will need to meet credit standards MBNA establishes. “While it’s way too early to go into specific product features, I can say that the American Express card we issue will be targeted for cardholders that are eligible for American Express,” said Jim Donahue, spokesman for the Delaware based card giant who acknowledged that these would more than likely be higher end cardholders. Donahue would not predict for the record the likely outcome of the Justice Department’s litigation before the Supreme Court and neither would other usually loquacious sources familiar with U.S. card markets. But off the record almost all said they believed the Department had a very strong case and that the card market in the U.S. should prepare to have three major brands of card products, all competing for an increasingly indebted pool of cardholders. Which brings up the second factor which might block credit unions from being attracted to American Express; assuming the court allows MBNA to issue American Express cards for its partner credit unions, who will necessarily want one? “It’s kind of hard not to suppose that all the cardholders who are eligible for American Express cards, and who want them, have them,” said Robert Hackney, executive director of Card Services for Credit Unions, the association of credit unions that process their credit card transactions with Certegy. Hackney pointed out that American Express is well known for a widespread card marketing program that seeks to reach consumers through a wide variety of different media. Hackney also pointed out that a lot of the details about the MBNA issued American Express cards, such as whether the higher interchange rate that American Express charges, will remain in place and how much of a bite out of that interchange MBNA might take. Keith Floen, managing director of InfiCorp, another leading purchaser of credit union card portfolios, said that his bank had approached American Express to be able to offer American Express cards, but that InfiCorp had decided not to move forward yet. “I think this is a time for credit unions to pay attention to how the litigation comes out and how it all shakes out,” Floen said. “It’s hard to assess what the impact of all this will be yet.” Even though the American Express offer helped seal the deal for First CU, the credit union stressed that it had gone through a fairly exhaustive process before it decided to sell the portfolio. Curtis reported that MBNA first approached the credit union in 2001 about selling the portfolio and that the credit union had turned them down, opting instead to try different approaches to improving the portfolio’s performance on its own. But after a Platinum card promotion had grown the portfolio “a bit,” Curtis reported that the portfolio had grown stagnant again and that the credit union began to consider selling once again, this time taking the time to visit a number of the card issuers before finally settling on MBNA. “We are planning on expanding our member business lending program,” Curtis explained, “and we decided to go ahead and move our resources into that effort.” [email protected]

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