WILMINGTON, Del. – MBNA, the card issuing giant and leadingpurchaser of credit unions' credit card portfolios, has begun tooffer access to American Express Cards as part of its pitch to getcredit unions to part with their card portfolios. “With us it wasreally a matter of the marketing bells and whistles that MBNA wasable to offer,” said Jay Curtis, CFO for the $422 million FirstCredit Union, headquartered in Tempe, Arizona, “and one of thosebells and whistles was the ability to offer our members a card withthe American Express logo.” First CU confirmed the sale of its $34million card portfolio to MBNA on August 16. Boston-based KesslerFinancial Services, the card advisory firm that often works withMBNA, arranged and settled the sale. “We know that many creditunions reject outsourcing their credit card product out of hand.First Credit Union completed a thorough evaluation – once the teamat First Credit Union took a look for themselves they realized whatthe benefits can be, especially in times where future uncertaintiesexist,” said Steven Fuld, senior vice president with Kessler. “Oneof the keys for First Credit Union was the ability to add a FirstCredit Union branded American Express product to their suite ofoffers.” Kessler also acknowledged that First CU was not the onlycredit union the AMEX card offer made a difference. For in midJune, the $1.3 billion Texans Credit Union sold its $53 millioncard portfolio to MBNA, a deal that Kessler said also included anAMEX component. “We didn't really play up that aspect of the deal,”said Fuld, “but it was there.” The possible addition of AmericanExpress cards to MBNA potential offerings has added a wild-card tothe very competitive market for credit unions' card portfolios, andone whose impact many card executives say remains unclear.Obstacles to Credit Union Amex Cards While the revelation of MBNA'sAmerican Express offer marked yet another significant turn for thecompetitive card portfolio market, it's uncertain what the movewill 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 toissue American Express Cards to its credit union partners. VISA andMasterCard's current regulations prohibit their card issuers fromoffering American Express. The U.S. Justice Department has takenVISA and MasterCard to court about the rule, alleging that itviolates Federal anti-trust laws. The Department has won both theoriginal case and the first two appeals, leaving VISA andMasterCard to appeal their case to the Supreme Court. As a VISA andMasterCard issuer, MBNA stands bound by the two associations'bylaws. Nonetheless, the company and American Express announced anexclusive agreement in January 2004 that would allow MBNA to issueAmerican Express credit cards, a notably different product for mostof the American Express brand. While American Express has severalrevolving credit products that it offers through its CenturianBank, the backbone of the company has been its familiar charge cardwhose balances cardholders have had to pay off each month. The MBNAissued product will be a credit card, one for which cardholderswill need to meet credit standards MBNA establishes. “While it'sway too early to go into specific product features, I can say thatthe American Express card we issue will be targeted for cardholdersthat are eligible for American Express,” said Jim Donahue,spokesman for the Delaware based card giant who acknowledged thatthese would more than likely be higher end cardholders. Donahuewould not predict for the record the likely outcome of the JusticeDepartment's litigation before the Supreme Court and neither wouldother usually loquacious sources familiar with U.S. card markets.But off the record almost all said they believed the Department hada very strong case and that the card market in the U.S. shouldprepare to have three major brands of card products, all competingfor an increasingly indebted pool of cardholders. Which brings upthe second factor which might block credit unions from beingattracted to American Express; assuming the court allows MBNA toissue American Express cards for its partner credit unions, whowill necessarily want one? “It's kind of hard not to suppose thatall the cardholders who are eligible for American Express cards,and who want them, have them,” said Robert Hackney, executivedirector of Card Services for Credit Unions, the association ofcredit unions that process their credit card transactions withCertegy. Hackney pointed out that American Express is well knownfor a widespread card marketing program that seeks to reachconsumers through a wide variety of different media. Hackney alsopointed out that a lot of the details about the MBNA issuedAmerican Express cards, such as whether the higher interchange ratethat American Express charges, will remain in place and how much ofa bite out of that interchange MBNA might take. Keith Floen,managing director of InfiCorp, another leading purchaser of creditunion card portfolios, said that his bank had approached AmericanExpress to be able to offer American Express cards, but thatInfiCorp had decided not to move forward yet. “I think this is atime for credit unions to pay attention to how the litigation comesout and how it all shakes out,” Floen said. “It's hard to assesswhat the impact of all this will be yet.” Even though the AmericanExpress offer helped seal the deal for First CU, the credit unionstressed that it had gone through a fairly exhaustive processbefore it decided to sell the portfolio. Curtis reported that MBNAfirst approached the credit union in 2001 about selling theportfolio and that the credit union had turned them down, optinginstead to try different approaches to improving the portfolio'sperformance on its own. But after a Platinum card promotion hadgrown the portfolio “a bit,” Curtis reported that the portfolio hadgrown stagnant again and that the credit union began to considerselling once again, this time taking the time to visit a number ofthe card issuers before finally settling on MBNA. “We are planningon expanding our member business lending program,” Curtisexplained, “and we decided to go ahead and move our resources intothat effort.” [email protected]