FRISCO, Texas — Town North Bank has acquired the credit cardportfolios of about 100 credit unions to date, a role the bank saysit is happy to fulfill, but the nation's only credit union-ownedbank says it is equally committed to helping credit unions maximizethe potential of their credit card portfolios if they choose tohang onto them.

To this end, the TNB Card Services Payments Conference Oct.12-13 focused on where the payments industry is headed and howcredit unions can operate a successful card program.

Renee Mauborgne, co-author of Blue Ocean Strategy: How to CreateUncontested Market Space and Make the Competition Irrelevant,opened the conference explaining the research behind herbest-selling book.

A study of 150 strategic business moves spanning 30 industriesled Mauborgne to conclude that tomorrow's leading companies willsucceed not by battling competitors, but by creating “blue oceans”of uncontested market space that are ripe for growth. Suchstrategic moves–termed “value innovation”–create powerful leaps invalue for both the business and its customers, according toMauborgne, rendering rivals obsolete and unleashing new demand.

“Competing with rivals,” Mauborgne said, “results in nothing buta bloody 'red ocean' where rivals fight over a shrinking profitpool. While most companies compete in this way, the strategy isincreasingly unlikely to create profitable growth in the future.”With Mauborgne's approach, credit unions should strive to find newways of providing value to their members through card services,rather than benchmarking their activities against leading financialinstitutions.

Dennis Moroney, senior research analyst with the TowerGroup,told the credit union audience that the nation's credit card markethas matured, but it is still profitable. “The U.S. remains acredit-centric culture, but with 'changing dynamics.' Margins willcontinue to shrink because of competition, fraud issues, anduncertainty about the economy.

“Receivables growth the past five years has averaged about 2%,compared with double-digit growth experienced from the 1970sthrough the 1990s. Institutions are making more solicitationmailings and issuing more cards, but are getting lower responserates and decreasing usage.”

But, Moroney said, credit cards will continue to contributemajor returns to financial institutions. “It is still the mostprofitable lending opportunity that exists.”

Jeff Rankin, senior vice president of client services at VisaUSA, disagreed with Moroney's comments about a mature credit cardmarket, saying the market is “still in its infancy,” as evidencedby the fact that not one of Visa's card products has declined belowhigh single-digit growth in recent years.

“Consumer credit growth this year was almost 10%,” Rankin said.“Why the resurgence in use of credit? The life of a credit card is10-15 years for the majority of people, because relationships aresolidified with multiple accounts. Recurring payments keep them asmembers. No one wants to change to a new institution. Your job isto sign them up for bill pay!”

With half of the $7 trillion in 2005 personal consumptionexpenditures made by check and cash payments, Rankin said thecredit card market still offers ample opportunity.

Visa is actively pursuing new technologies (contactless,mobile), modifying existing products (ZSR, small ticket purchases,utilities), and promoting existing products, such as bill pay.Contactless payments, in which the card never leaves the consumer'shand, are receiving a lot of attention, according to Rankin. “Thebig players in the industry are committed to this.” On day two,Lynn Daniel, TNB Card Services vice president/account executive,explained the six disciplines of effective card programs: managingthe portfolio, choosing the right products, setting appropriatepricing, promoting the program, establishing loyalty programs, andachieving profitability. Daniel recommended that credit unions withcard programs look at issuing Platinum cards if they are notalready doing so. “That's where all the growth is. Many TNB clientshave gone to only one product–the Platinum card, which they mayoffer at 18% for the high-risk cardholders and 4.9% for low-riskcardholders.”

Callahan & Associates President Chip Filson concluded theconference by asking to consider whether credit unions are in a newfinancial era and whether they will need to reinvent their businessmodels to survive. “Bank success results from maximizing value fromthe customer. Credit union success comes from maximizing the valuedelivered to the member. How can credit unions re-imagine,recreate, and reinterpret their roles in members' lives in the 21stcentury?”

For credit unions to succeed in transforming their institutions,they have got to change their views about how to realizeopportunities, Filson said. Success today is coming to institutionswith “entrepreneurial drive,” such as start-up credit unions with awell-defined mission.

Other successful credit unions have delivered member valuethrough product and service innovations. One example is BECU'snewly launched Member Advantage account that pays 7.5% on the first$500 in a savings or checking account linked to bill pay, directdeposit and e-statements. “The credit union is focused onencouraging savings and building relationships,” said Filson.“Their approach is, 'We know you don't have a lot of money, but wewant a relationship for life!'”

And finally, Filson said credit unions must consider businessmodel evolutions that spawn new revenue opportunities, such asmulti-owned credit union service organizations.–[email protected]