The $13.5 billion Pentagon Federal Credit Union has announcedthat it is the only credit union in the country, at least for now,to directly issue American Express cards.
In a Nov. 16 announcement, the credit union said it would be theonly credit union to issue the card “for a limited time,” andPentagon declined to comment further on how long that might be.Other credit unions around the country that issue American Expresscards do so through banks with which they have agent issuingagreements.
The deal with Pentagon represents something of a shift for AmericanExpress. Before late 2007, the card brand had been effectivelyrestricted to issuing its own cards because rules and agreementsamong Visa, MasterCard and financial institutions had blocked anyfrom issuing American Express cards. Then, when American Expresssettled a suit to be able to partner with financial institutionissuers, the card brand made it clear that it was primarilyinterested in working with large banks. But now American Expresshas decided to open up issuing to a broader field of financialinstitutions, both banks and credit unions.
“We continue to have discussions with other potential partners inthe U.S. and plan to add more partnerships on a selective basis,”wrote an American Express spokesman in an e-mail response. “Ourgoal is to work with a range of issuers in the U.S., includingsmall, medium and large players, as long as they are a strategicfit for our brand and can bring in high-spending customers to ourmerchants.”
“The PenFed brand stands for trust, integrity and security, and wehave a history of providing rich product offerings to our members,”said Nicole Butler, Pentagon FCU's vice president of card servicesand business development. “The PenFed Premium Travel RewardsAmerican Express Card is no exception. With this product, we'reupholding our brand promise and presenting the discerning cardmember with a superior travel rewards product-no gimmicks, noblack-out dates and no single-airline limitations.”
Butler said the credit union decided it had an opportunity withAmerican Express after seeing some of the results from a review ofits members card use. “When we saw how many of our members wereusing their cards for consistent travel, which has been a strengthof American Express, we decided to see what we could do,” Butlersaid.
She said that size had not been the biggest factor behind thedecision to start issuing American Express cards but instead thepropensity of its members to use the cards. No matter how manycards a credit union issues, she noted, what matters is how manymembers pull out the cards and use them.
According to the NCUA, the Pentagon Federal issued about 388,000credit cards as of the end of June, which gives is a penetrationrate of about 42% for its credit card, very good for a creditunion.
Butler said that the credit union would control the terms,parameters and underwriting of the cards and did not plan torestrict them to only members with a certain credit score. “If amember qualifies for one of our cards, we will offer them thisAmerican Express card as an option,” Butler said.
She also said Pentagon expected to see some degree ofcannibalization in its card portfolio as some of its existing Visacardholders moved over to the new card. But she also noted thatPentagon expected some of its members to carry both card brands anduse them for different things.
“Visa has the whole cash back for food and grocery offer going,”Butler said. “And American Express is strong in the travel andbusiness sector, so we expect there will be some of our members whowill keep both cards and use them in different places.”
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