Making good on a long offered promise, CO-OP Financial Services announced last week that it will start processing credit card transactions in early 2011.
The new program, which CO-OP has dubbed CO-OP Credit Pass-Through Processing, said the service will be available to credit unions next January.
"We're currently in beta-testing with several credit unions and haven't had any lack of credit unions who have raised their hands and said they would be interested in the service," said Caroline Lane, senior vice president for business development for the processing CUSO.
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Lane said that currently roughly 1,100 credit unions nationwide use CO-OP for some aspect of their card processing, whether ATM processing, debit transactions that authenticate with personal identification numbers or other services. The CUSO considers these CUs the obvious first candidates for the credit card service, drawn by the opportunity to have one source for all their processing services.
"Credit unions are serious about finding ways to continue providing outstanding, customized service to their members while reducing their operating expenses," said CO-OP CEO Stan Hollen. "We're equally serious about helping them accomplish this. By adding credit card processing to our business lines-tailored exclusively for credit unions- we become a single point of contact for debit and credit processing, surcharge-free ATM network and shared branching."
CO-OP's credit card processing effort will enter an already crowded market for CU card processing, competing with FIS, PSCU Financial Services, the Members Group, TNB Card Services, PEMCO and TSYS for CU card transactions.
But the CUSO said that it was making the move after credit unions that were already doing some of the transaction processing with CO-OP kept requesting it. Jennifer Kerry, CO-OP vice president for card services, said in January 2010 that the CUSO was working on meeting the members request.
CO-OP hired Kerry, a former executive with FIS, in February of 2009 to help prepare the organization to offer the service and recently added Jim Blouin, a former card program and portfolio analyst also with FIS, as regional sales manager. Both were moves that analysts interpreted as part of the CUSO's preparation to enter the crowded credit card processing space.
Reaction from CO-OP competitors has been positive and collegial. Jeff Russell, executive vice president with the Members Group, a CUSO affiliated with the Iowa Credit Union League that offers card processing, said credit unions would benefit from having another option but minimized the impact that CO-OP's card processing might have.
"TMG continues to offer credit unions both full-service and pass-through credit card processing options, and we were among the first credit union providers to offer pass-through credit card processing to our clients in the mid-1990s," Russell said. "Pass-through processing is a good option for some credit unions, but we believe that having a full range of products, including a full-service processing option, provides credit unions the flexibility they need to serve their members."
Chuck Fagan, a group executive with PSCU Financial Services, agreed that it would be good for credit unions to have "a welcome addition to the credit card processing landscape," and he acknowledged that some credit unions will likely choose CO-OP, particularly the ones who already process debit transactions with CO-OP.
"But with 30 plus years of credit card processing history, PSCU will stay focused on deepening our relationships with our existing members," Fagan said.
PSCU, like TMG, will initially differ from CO-OP in that it also offers full-service processing, but Lane said that this will only be temporary. CO-OP has full-service credit card processing in the works as well for later in 2011 or 2012.
Russell wondered at how practical that will turn out to be. Full-service credit card processing tends to be more complicated and expensive as CUs can use it to outsource almost all of their credit card program management-including the labor intensive elements like charge back and fraud resolution and collections.
But CO-OP will start out sharply different than its competitors in one key aspect. Where other card processors like PSCU, TMG, FIS and TSYS essentially offer either space on their card platforms directly or to repackage processor services for credit unions, CO-OP will offer its own switch and its own processing. This could mean that CO-OP offers a product that could meld much more seamlessly into a credit union's existing operations by presenting notoriously opaque credit card processing reports in plain language and by possibly allowing credit union clients to bundle rewards programs.
For example, it would be theoretically possible for a credit union that uses CO-OP Financial Services for its debit and credit card processing along with ATM processing and shared branching to offer a comprehensive rewards program that offers rewards for all of a household's transactions. Lane said CO-OP had not yet finalized any plans for a rewards program but acknowledged the possibility.
Still, it's unclear that CO-OP will have an easy path into credit card processing or any guarantee of success. The current economic environment with a possible impact on both debit and credit card income means that price will become an even more important factor in choosing card processors, analysts say. CO-OP's success will likely depend on being able to offer both a cash and strategic advantage in its credit card processing option, they said.
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