SAN ANTONIO, Texas – TNB Card Services, the credit card processing and purchasing arm of the credit union-owned Town North Bank has issued a paper which aims to help credit unions make the decision whether or not to sell or hold its credit card portfolio. Previously, TNB Card Services has strongly advocated for credit unions keeping their card portfolios, and the organization still takes the position that credit unions are better off keeping their card portfolios. However, the firm has also become a significant purchaser of credit union card portfolios and so can also speak from the portfolio buyers' perspective. John Reap, president of TNB, touched on the topic in his opening address to the TNB Executive Card Conference, where the paper was released. He reaffirmed that TNB – despite its active portfolio buying in 2003 and 2004 – is just as comfortable as a credit and debit processing partner to a credit union as it is the owner of the credit card portfolio. "Our fundamental belief is that you should own your portfolio," Reap declared. "But we do understand that there are circumstances where owning it is not the best option. That is why we also buy portfolios." As part of the paper, TNB stressed the importance of balancing the full needs of the credit union against the relationships and challenges that a credit card portfolio can bring. TNB's factors in favor of selling, for example, included the "immediate infusion of cash" that the sale can bring, along with recurring revenue, a shifting of marketing and administrative costs to the buyer and members being happier with their credit union cards. Against those factors the credit union needs to weigh whether or not it really needs the income just now, along with its ability to make more money in a properly managed program and whether or not the credit union feels comfortable losing control of the interest rates and terms of cards held by its members. In some respects the paper appears to come down on the side of selling, noting at one point that while the market for credit unions selling portfolios is currently strong, there is no way to know how long it would remain strong. "The current financial environment has been a good one for portfolio sales," the paper noted. "The number of credit unions that are selling their portfolios to TNB Card Services and other buyers is increasing, and the premiums paid are strong. It is difficult to predict how long this situation will last; TNB's advice is that if a credit union foresees selling the credit card business within the next five years, it is wise to do it now." But on the other hand, the paper also illustrated the situation of an unnamed credit union that brought life to a declining card portfolio through better card management practices. Using TNB's advice, the credit union increased the credit lines of lower-risk cardholders from an average of $2,900 to an average of $4,000. This increased card usage and income from lower risk cardholders. The credit union also placed risk-based pricing into place which helped retain cardholders by cutting the interest rates for more than 70% of cardholders. The credit union also moved from offering only a single card to offering a Platinum card to over 60% of eligible members as identified by their credit scores. "The credit union was able to achieve this strengthening of its portfolio without any increase in overall risk levels," the paper reported. "In fact, risk levels actually decreased because of the ensuing increase in usage by lower risk cardholders. After one year, the credit union realized a 10% growth in balances overall, and a 55% growth in balances on its low-risk accounts." In the end, reflecting its overall stance in the industry, the paper didn't really come down either way on the issue of whether or not credit unions should sell their card portfolios, but more or less declined to take a firm position. "For all the yardsticks that this document suggests in order to determine the best approach, the final decision will never be entirely objective," the paper concluded. "Whichever way the financial data may lean, there will always be subjective considerations that involve the importance of the credit card portfolio to the credit union and the effect that a sale would have on its relationship with its members." -

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