If considered only in a glance, credit union card programs seemextremely well-
positioned for 2011.

Trying to cut their credit card losses, large bank credit cardprograms have dropped a record number of consumers and cut many ofthe remaining cardholders' credit lines to a point where the cardsare of little use. At the same time, trying to recoup lost incomefrom overdraft and debit interchange regulation, large banks havebegun to charge fees or require balance minimums to justify issuingdebit cards. Both moves suggest that large banks will remainalienated from a significant portion of their customer base andthat the trend to move from large, national banks to smallercommunity banks and credit unions will likely continue.

But does that mean that credit unions will necessarilycapitalize on the opportunity? That is not so clear, according toCU card experts and consultants. But first, the credit unionstrengths.

Even after the current round of federal regulations effectivelymade many large bank credit cards look a lot more like CU-issuedcredit cards, credit unions still offer consumers a better deal oncards, the consultants say.

Further, when it comes to debit cards, it seems possible thatcredit unions with some community banks may be the only source ofdebit cards free or almost free of fees and other onerous ruleslike minimum checking balances. Finally, in contrast to largebanks, credit unions are riding the wave of praise from nationalexperts in consumer protection and consumer finance. Further, alongwith community banks, credit unions have gained the praise ofnational media outlets and campaigns that have sought to bringmoney back to local communities. All of that would appear toposition credit union card programs for strong growth in 2011.

But CU card consultants and executives stressed that creditunions will need to take steps to make sure that their members andthe broader public know and understand the key credit uniondifferences-and not just when it comes to cards.

That difference is going to involve the whole credit union,according to Jeff Russell, executive vice president with TheMembers Group, a payments CUSO affiliated with the Iowa CreditUnion League.

“Let's take fees,” Russell said, “a bank-issued card mightcharge $25 for a late payment where a credit union card mightcharge only $15. That's not as clear a difference as it might havebeen when a credit union might have charged only $10 or $15, andthe bank card charged $49.”

In place of such stark differences, Russell suggested that theCUSO's research showed that it was going to be the relationshipwith the credit union and the local, community aspect that CUs weregoing to have to deploy for their card programs.

“It's going to be the knowledge that they can walk into a creditunion branch with their [credit card] statement and say 'can youwalk me through this' or 'can you help me understand something'that is going to make the difference,” he said. Russell alsosuggested that many credit unions may need to review their cardprograms and portfolios to make sure they still match theirmembers' needs in this changed environment.

For example, a member who might have had one credit profile in2009 might have a much different credit profile after they canceledsome of their bank cards or, more likely, had some of those bankcard credit lines either cut back or even cut entirely. Even thoughthose folks might have had their credit score slip, they are likelystill pretty good credit risks who need a helping hand from theircredit union now more than ever, Russell declared.

Ondine Irving, a card consultant and founder of Card AnalysisSolutions, a Chicago-based credit union card consultancy, agreedwith Russell but only somewhat.

“I still see credit union credit cards as something which cancompete as a standalone product,” Irving said. “On their meritsalone.”

Irving conceded that regulation has closed some of thepreviously yawning gaps between credit cards issued by banks andthose issued by credit unions, but maintained her conviction thatno regulation could improve the behavior of bank card issuers ortheir assumptions when issuing the cards.

Irving played off Russell's example of the relative latecharges. While it was true that the gap between a bank and creditunion late charge might have narrowed, she explained, the twoissuers remain far apart on when they will make that charge andtheir willingness to charge.

“Sure, the bank might only charge a $25 late charge, but whenare they going to make that charge?” she asked. “Most credit unionsstill offer a grace period of up to five days to make payments andmost banks are going to charge you the late charge if you are evenan hour late. It makes a difference.”

Irving said the relationship that credit unions have with theirmembers will resonate with consumers if the core of thatrelationship is respect for the member and a willingness to helpthem. Some credit union clients, she allowed, had forgotten some ofthat lately and acted a little bit too much like bank card issuersand their credit card programs had begun to suffer.

“Fundamentally you have to see members as members,” she said,“not primarily as opportunities to bring in more revenue.”

Chuck Fagan, an executive vice president with PSCU FinancialServices, said his CUSO takes an optimistic view of the CU cardoutlook.

“We think 2011 will be the year for the breakout of credit unioncredit cards,” Fagan said, adding that while the new cardregulations had served to narrow the differences between bank andCU credit cards, it had also alerted consumers to thatdifference.

“That law and the debate over that law did a lot to open up alot of consumers' eyes about the cards in their wallet,” Fagansaid. “And that's good for credit unions.”

Fagan agreed with Russell, however, that credit unions needed toreview some of their card programs to meet their members' changedcard needs. He said PSCU was working with client credit unions ontwo particular card products, one a card that carried rewards andthe other a card that carried a lower annual percentage rate. Eachone should help CUs meet the needs of two broad groups of members,he said.

He also noted that quite a few credit unions need to updatetheir online and mobile banking presence, not just to have the newtechnology for its own sake but to help insinuate the credit unionmore deeply into the members' lives. “A tightly integrated onlineor mobile presence will help members streamline their contact withthe credit union and help them bring the credit union into moreparts of their busy lives,” he added.

Bill Lehman, card consultant for Card Services for CreditUnions, stressed that properly understanding and segmenting theirmembership will be even more necessary for credit unions to takeadvantage of the card opportunities. He suggested that creditunions both study card use data of their existing cardholders andsurvey their membership about card needs to determine if they areserving them properly.

“Too many credit unions listen to voices in the marketplaceabout trends and needs without remembering that the broadermarketplace is not their membership,” Lehman said, adding that evenas many credit unions have broadened their fields of membership toserve whole communities, they usually still have strongrelationships with large groups of members from the old SEGs. Thoserelationships and history can provide a good source of data aboutmember needs.

Russell, Fagan and Lehman said the situation had gotten morecomplicated when it came to debit card programs and they agreedthat the relationship between the CU and its members is going tobecome more important when it comes to debit cards.

“Too many credit unions are looking at this question solely interms of 'should we or shouldn't we keep free checking,'” Russellsaid, “when in reality the question is more complex.”

Russell recounted reports TMG has gathered of credit unionmembers who held a checking account with their credit union andanother with a usually larger bank. When the larger bank announcedthat its checking account was going to require a minimum balance inorder to qualify for a fee-free debit card, those members did notclose their bank accounts and move to the credit union. Instead,they closed their credit union accounts so they could put all theirmoney in their bank accounts and make sure they met the accountminimum, Russell explained, adding that they could have acted forany number of reasons.

“Maybe they have their mortgage with the bank and paying it iseasier if they have their account there. Maybe the bank has moreATMs. Maybe they have other loans there,” Russell said. “The pointis that what credit unions need to aim for is not to get everymember to have a checking account but for every member to have achecking account, a couple of loans and to bring their kids to theCU when they are old enough,” he said.

“It's all about how many products do you have per household,” headded. “A checking account, that's one product, a credit card,that's another. A car loan, another, a mortgage, another sort ofpersonal loan. They all add up to a relationship between the creditunion and its member,” he added.

Fagan agreed, and said he expected membership rewardsprograms-which reward credit union members for using other creditunion products-to become more important in 2011 as a way of helpingcredit unions foster and deepen their relationships with theirmembers.

Lehman agreed and said that credit unions may need to build freechecking into a broader relationship rewards and pricing structureand may need to look at the use of prepaid debit cards for thosemembers who will not be able to participate in the pricing packageright away by taking out other loans or using other products. Suchcards are inexpensive to offer, provide the members with theconvenience of cards and are not subject to any interchange limits,he noted.