In our travels throughout the country, we speak with a wide variety of credit unions about their credit card programs. One theme emerges again and again: the movement is at a crossroads when considering what to do with this important business line. Unfortunately, credit union executives receive conflicting messages about the role of credit cards within their institutions and within the credit union movement as a whole. Listening to this barrage of "chatter" can be time consuming, frustrating and (too often) nearly worthless in helping a busy executive determine what is best for their own credit union and its members.

The topic, though, is too important to ignore. Credit cards are a very important product for your members. When handled properly they can strengthen member relationships and help ensure that you remain their primary financial institution. Fortunately, we see an unprecedented number of credit unions now taking the time to think through their card programs, place them within an organizational framework, and commit the resources required to execute those strategies.

The results are encouraging: credit card assets in the credit union movement are up for the first time in years. From 2000 to 2004 card assets grew by a mere 1% per year, but in the past two years balances are up over 18%! In a time period when large bank issuers are struggling for any growth, the credit union movement truly has something to crow about.

That said, improving credit union card programs must continue. And unlike other products, this improvement can be accomplished in a couple of different ways: you can keep your program, invest in it and manage it in the traditional model, or you can sell it and allow a larger issuer to make those investments and manage it for you. That choice does not exist on many other core products, and no one can make it for you. The results from both options can be positive, but understanding the ramifications and placing the decision within an overall strategy is critical to success.

With that in mind, here is a list of the "Five Lies You Will Be Told about Your Credit Card Program." If you are considering the future of your card program and you hear any of these things being said, feel free to take issue with them in a, shall we say, spirited way. Lie #1: Your Card Program is Not Profitable In our analysis of hundreds of credit card programs, the truly unprofitable portfolio is rare. Most credit unions should start with the assumption that their credit card business is profitable. A detailed profit and loss analysis should be completed to determine exactly how profitable it is. The old saying is true-you can't know where you're going if you don't know where you have been.

Lie #2: Cards Are a Commodity, So You Cannot Compete

This one we find particularly offensive, because it not only starts with a lie, it also seeks to lead you to a false conclusion. Let me ask you a question: When you pull out a credit card from your wallet, do you do so randomly? Didn't think so--no one does. We all pick the card we use for a reason. The reasons can range from earning reward points, to knowing the balance will "roll" and choosing the low-rate card, to (yes, it happens) feeling loyal to a particular financial institution. That decision process is the opposite of a commodity product. Pork bellies (which hopefully you don't offer) are commodities; credit cards are common, but they are not commodities. Don't let someone confuse a common product with a commodity product. The two are very different and lead to different strategies and tactics. Lie #3: Big Issuers Do Everything So Well You Cannot Compete This statement starts with something that is pretty accurate. We need to admit that the big issuers do many things very, very well. They are marketing powerhouses, they really do have excellent service records (despite the popular media's love of bashing them), they are very good at delivering products that card holders want and their "failure rate" is astoundingly low. What they don't have, though, is the trust and loyalty of their customers that credit unions do. That trust goes a long way, and the growth of credit card balances within the movement is evidence that credit unions are figuring out how to use that trust to improve their card success. Lie #4: All Portfolio Buyers Are the Same--Take the Highest Bid

First of all, this lie will not matter to many credit unions, because each year only about 3% choose to sell their card portfolios. But for those considering this option, taking this at face value risks alienating your members and demoralizing your staff. A failed credit card portfolio sale is far worse than no sale at all. When a credit union really takes the time to understand the differences between issuing partners we literally see their eyes widen. At the end of the day the highest bid may be best for you, but in an environment where member satisfaction and service excellence are primary concerns that isn't always the case. If you are being told that the highest bid is reason enough to pick a partner, you are speaking with someone that either does not want to spend the time analyzing all the "soft" differences or who has a vested interest in you taking that offer over some others that should be considered. Lie #5: We Are Objective When We Help You Decide The only way an advisor can be objective is if they satisfy two conditions. One, can they work with you whether you choose to keep or sell your portfolio? If the only way someone can get paid (and let's face it, no one works for free) is if you sell your portfolio that really biases their approach. Two, are they working for one or two specific portfolio buyers instead of being unbiased to which partner would be best for you? Some banks that buy portfolios prefer to avoid the "put all offers on the table together" approach and try to maintain a separate conversation with you from other available offers. In our opinion that complicates the analysis and makes it harder for the credit union to sort out the details; if your advisor works in such a model be aware of the incentives this can create for them (which may be very different from yours).

While we could go on and on about this topic (to which many of our clients are now thinking "Isn't that the truth!"), we offer this abbreviated piece hoping that it will help more credit unions find it in themselves to embrace an analysis of their card programs. Giving all available options a hard look and making a clear and focused decision ensures the organization knows where it's going, that tactics are aligned to overall strategy and that staff has bought in from top to bottom. Let's be honest, making the decision as to what is best for your members feels difficult--but it can't be avoided forever.

Instant Insights /

Five Lies About Your Credit Card Program--Don't Be Fooled!

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