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

Building on some of the data collected by Asset Exchange, a subsidiary of Fidelity National Information Systems offers a good opportunity to look more closely into a topic in which we have found intense credit union interest.

The Fidelity/Asset Exhange study, as referenced in the article, confirms that a majority of those that sold their credit card portfolios would do so again. At the same time, however, it also indicates that the partner selected the first time through has too often disappointed their client credit union on some level. This is not surprising to us, as we see many credit unions focus to a high degree on the financial offers presented, assuming that the other features of the program will more-or-less take care of themselves. Nothing could be further from the truth. While an attractive financial outcome is important, when one's members are confronted by higher fees, increased rates or inflexible servicing the overall outcome is sure to disappoint.

Let's face it, credit card programs are largely an exercise in managing service issues. (Have any members called you recently to thank you for a card program that has been working well for them? I didn't think so.) Once a card portfolio is sold, members will still have issues that need to be addressed. If the front line staff has not been trained to resolve them and they do not understand why the portfolio was sold they will resent being put in the middle. We advise our clients to take the time to inform all levels of their staff as to why the sale decision was made and to educate them at length about the benefits to the members overall. Without that effort, all member complaints will come to be seen as a result of the sale instead of an expected part of managing a card business.

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

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

2. Consider using an advisor. Credit card portfolio sales are very specialized transactions, and an advisor specializing in credit card programs can add great value. Selecting a partner is much more than negotiating the highest bid and the Fidelity survey indicates that too many portfolio sellers "did not know what they didn't know." Experienced advisors can offer high value guidance in the negotiations on all program features and contractual protections to ensure that there are no surprises later. A credit union will be making trade-offs in a portfolio sale, and an advisor's duty is to ensure that you are aware of all of them before you make your decision. The Fidelity survey shows too many credit unions were surprised after their sale.

3. When selecting an advisor make sure they are not structured to favor a limited set of buyers or processors. Make sure you require your advisor to attest (in writing!) that their company has no contractual biases toward any portfolio buyers or processors.

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

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

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