I was pleased to see the recent reports that fewer credit unions are selling their card portfolios and credit union card programs are out-competing other financial institutions (Credit Union Times, Jan. 16, 2008). It's a great success story for credit unions, and as a former credit union executive it's a story that I can relate to. It is useful to reflect on how credit unions proved that naysayers of credit unions and card-programs were wrong.
First, credit union representatives paid attention to the market and learned from it. Perhaps the biggest innovation in cards during the past two decades has been the rewards program. Banks introduced these first, but Fidelity National Information Services, Inc. and other vendors heard what credit unions wanted and created great credit union rewards programs. Now many credit unions offer reward programs that meet or exceed the competitions.'
In addition to rewards, FIS and other business providers have worked with credit unions to create activation programs, check programs, fraud programs and other tools they need to compete. It's a story that I am proud to be part of: credit unions and their business partners working together to improve products and win.
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Second, credit unions stuck to their knitting by offering better rates, lower and fairer fees, and superior primary financial institution relationships. These basic advantages meant that once bank features were matched, members came back to their credit union cards. In fact, they are coming back in droves. According to NCUA data, credit unions went from 70% of credit union card programs shrinking in 2003 to over 75% growing in 2007. Credit union card programs are now growing at twice the rate of their competitors.
Credit unions have offered great value, and the members have returned the favor: credit union charge-off rates are less than half the average among banks, allowing credit unions to keep rates down and service up. This is an example of credit unions doing what they do best–working with members to offer value and service. In fact, cards are doing so well for credit unions that Credit Union Times recently reported that some institutions that sold in the past are now restarting their programs in-house.
Of course banks have always known about credit union strengths, and that is one reason they have actively marketed to credit unions in an attempt to convince them to sell their credit card portfolios. But interestingly enough, portfolio buyers don't tend to last in this market: As also reported in Credit Union Times, they tend to be strong buyers for one-to-three years and then withdraw from the market. Perhaps they learn that this magic can't be bottled? In any case, the credit unions have learned a similar story from the other side of selling, with about half of sellers not being happy with their partners after the sale (Credit Union Times, Dec. 19, 2007). Perhaps sales have also slowed because these aren't matches made in heaven.
Another factor in the reduction in sales may be strength among credit unions. Some credit unions sold card portfolios to address balance sheet issues, even though the card was performing well. For example, credit unions that sell tend to have lower and declining capital levels relative to other credit unions. Perhaps the increasing strength of credit unions, with capital levels now comfortably above 11%, has also reduced the pressure to sell high-performing card assets.
We are pleased, but we are not complacent. At FIS we continue to focus on how we can help credit unions compete and win with card portfolios that contribute to their balance sheets, are easy to run, and positively reinforce member relationships.
As a movement let's find time to celebrate our wins, even as we seek to continue improving.
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