Under the terms of the deal that Serlo outlined, any existing PSCU member credit union that already processes its credit card and signature debit transactions with the CUSO can sign a letter of intent to move its PIN-debit business to PSCU and start to benefit from the per transaction pricing breaks that PSCU is able to command. In order to take part in the deal, the member credit union's contract with the existing PIN-debit processor can have no more than 24 months left.

PSCU has a strong relationship pricing tradition with First Data that allows it to offer members sharp discounts based on the number of products and services used.

"We are essentially reacting to the problems that our member credit unions identified," explained Charles Fagan, chief sales officer for PSCU. Fagan explained that PSCU member credit unions had complained for some time about the inefficiency of the separate processing platforms for their debit programs and the difficulty different contract deadlines presented. "This approach allows them to transition to PSCU with the least amount of administrative difficulty and reaping the greatest rewards."

Fagan estimated that roughly 40% of the CUSO's member credit unions process their PIN-debit transactions with PSCU while about 60% do not, leaving the CUSO significant room to grow in this area.

Serlo also outlined how well the CUSO has been doing in returning value to its member credit unions, citing that the cooperative returned 91% of its savings for 2007 to its member owners and will return 103% of its annual savings for 2008. PSCU will also return $20.5 million in proceeds resulting from Visa's initial public offering of stock to credit unions that issue Visa cards under its principal agreement with the card brand.

Serlo's report and optimism stood in stark contrast to some of the messages that the executives heard from the major card brands.

Wayne Best, senior vice president of business research for Visa Inc. offered a mixed view of the economy, seeing a shorter economic slow down than many predict but still considering the sharp downturn in the housing market as a continuing drag on the economy and card use.

"The rise in unemployment rates signal a recession, but we expect it to be of short duration, and end this summer," Best told executives. And while high gas prices are expected to consume a greater percentage of consumer spending, he noted that the country is using less gas than in the past and the weak U.S. dollar is creating growth in exports. Tax rebate checks will also help the economy, he added, since traditionally most of these checks will be spent almost immediately.

But he also noted that while the recession may be relatively short lived, the economy cannot fully recover until the housing market is restored, and this may be a longer rather than shorter process. "Housing prices have not yet hit bottom" he said. "We are predicting a 20% decline nationwide due in part to the bloated supply of homes available. The housing surplus is the highest in two decades of recordkeeping, and some markets have a 10-month supply of new and existing homes." And he did not expect house prices to stabilize until the second quarter of 2009.

In the face of this situation, Best advised credit unions to pay close attention to the card programs, closer than usual.

"Consumers are using their credit cards to stay current on their mortgage payments. Outstanding balances for prime cardholders for 2005 and 2006 have increased to $4,500. Half of these cardholders are 30 days late on payments, as compared to a 20% rate for subprime cardholders," Best said. "Despite this gloomy outlook, he said credit unions have the opportunity to expand in the credit space and gain market share. "Unemployment rates remain relatively low, just 2% for college graduates, so there are opportunities to service members and make money without undue risk."

Ron Silvia, director of debit services at PSCU, urged credit unions not to let up on establishing checking accounts with members and automatically offering debit cards. Acquiring checking accounts and conducting target marketing are both important to a profitable program, he explained.

"Checking accounts remain a dominant force in the member relationship. Credit unions should focus on opening checking accounts with new members and offering debit cards automatically," he said. Many credit union members also have bank accounts and do not demonstrate loyalty to either institution. "It's important to build loyalty through rewards programs and promotions. We can help credit unions design campaigns to build usage for active accountholders and stimulate activation for members who do not have debit cards."

He also explained that now was the time for credit unions to see how much savings they can make through greater efficiency.

"Credit unions cannot control interchange rates but they can control costs," Silvia said. "One of the best ways to reduce expenses is to reduce the number of networks involved on the backend and to use surcharge-free networks. One credit union reported saving $80,000 by shifting from one network to another and significant savings can be gained by eliminating unnecessary networks and surcharges."

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