A recent article in the Credit Union Times shed some light onthe experiences of some of the credit unions that have sold theircredit card portfolios and partnered with third-party institutionsfor credit-card issuance.

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Building on some of the data collected by Asset Exchange, asubsidiary of Fidelity National Information Systems offers a goodopportunity to look more closely into a topic in which we havefound intense credit union interest.

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The Fidelity/Asset Exhange study, as referenced in the article,confirms that a majority of those that sold their credit cardportfolios would do so again. At the same time, however, it alsoindicates that the partner selected the first time through has toooften disappointed their client credit union on some level. This isnot surprising to us, as we see many credit unions focus to a highdegree on the financial offers presented, assuming that the otherfeatures of the program will more-or-less take care of themselves.Nothing could be further from the truth. While an attractivefinancial outcome is important, when one's members are confrontedby higher fees, increased rates or inflexible servicing the overalloutcome is sure to disappoint.

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Let's face it, credit card programs are largely an exercise inmanaging service issues. (Have any members called you recently tothank you for a card program that has been working well for them? Ididn't think so.) Once a card portfolio is sold, members will stillhave issues that need to be addressed. If the front line staff hasnot been trained to resolve them and they do not understand why theportfolio was sold they will resent being put in the middle. Weadvise our clients to take the time to inform all levels of theirstaff as to why the sale decision was made and to educate them atlength about the benefits to the members overall. Without thateffort, all member complaints will come to be seen as a result ofthe sale instead of an expected part of managing a cardbusiness.

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So, given the stakes involved, if a credit union is consideringa portfolio sale, what can management do to ensure that the outcomeholds no unpleasant surprises?

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1. Do not casually provide your credit card portfolioinformation to a broker or buyer to "see what we could get." Whatmany credit unions don't recognize is that when they provideinformation because someone said they would provide a "free survey"of what the market might offer, they are starting the process atthe wrong point. A credit union looking to understand their creditcard program options really needs to start with a clearly definedprocess; a process which starts with an internal conversation aboutthe reasons for the analysis and what the credit union is lookingto find out.

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2. Consider using an advisor. Credit card portfolio sales arevery specialized transactions, and an advisor specializing incredit card programs can add great value. Selecting a partner ismuch more than negotiating the highest bid and the Fidelity surveyindicates that too many portfolio sellers "did not know what theydidn't know." Experienced advisors can offer high value guidance inthe negotiations on all program features and contractualprotections to ensure that there are no surprises later. A creditunion will be making trade-offs in a portfolio sale, and anadvisor's duty is to ensure that you are aware of all of thembefore you make your decision. The Fidelity survey shows too manycredit unions were surprised after their sale.

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3. When selecting an advisor make sure they are not structuredto favor a limited set of buyers or processors. Make sure yourequire your advisor to attest (in writing!) that their company hasno contractual biases toward any portfolio buyers orprocessors.

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4. Spend the time required to understand the pros and cons ofkeeping or selling the portfolio. It would be nice to be able topick the best parts of keeping the program in-house (e.g.underwriting control, rate and fee setting...) and combine it withthe advantages of selling (e.g. eliminating credit and fraud risk,more marketing efforts...). Unfortunately no one has found a way tooffer that combination yet. A credit union needs to clearlyunderstand what they will be giving up and what they will bereceiving, and communicate all of those things to everyone in theorganization. These are not easy decisions. When the front linethinks they were made haphazardly or they do not see the positivereasons for change they are placed in a very difficult position.This is a recipe for resentment and failure. Often a credit cardportfolio sale does not make sense, but even when it does manystaff members will assume the reasons were not good enough unlessthis effort is successful.

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5. Take the time to understand the differences of each partner.We know there is trouble ahead when we talk to a credit union thatsold its portfolio and they say "We took the highest offer, all theother stuff is pretty much the same across all the buyers." Thattells us very quickly that the credit union didn't take the time toreally understand the differences among partners. And there aremany important differences. Especially interesting in the pastcouple of years has been the rise of "in the movement"solution.

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Hopefully this very brief overview spurs those credit unionsconsidering an analysis of their credit card options to ask somequestions of themselves before they begin. While most credit unionswill continue to maintain their credit card programs in-house, andmany of those will do quite well, those that are considering aportfolio sale need to proceed carefully and diligently. The stakesare high, as the Fidelity/Asset Exchange survey demonstrates, andit is a welcome addition to this very timely dialogue.

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