Numbers Show Credit Unions May be Waking up to Value of Card Programs; Card Penetration Still Weak

The numbers came in strongly for the end of 2006.

Depending on whose numbers you use the number of credit unions which sold their card portfolios to banks and entered into agent issuing programs either rose only slightly or actually shrank in 2006 compared to 2005, according to an analysis from card brokers Asset Exchange and Brookwood Capital. The value sold of the portfolios' outstanding balances also decreased, according to the brokers' analysis.

Asset Exchange's analysis showed that approximately 65 credit unions sold their card portfolios in 2006 (23 in the last quarter of the year), down 7% from the 70 that sold their portfolios in 2005. The total value of the portfolios sold was $454 million for 2006 ($125 million in the last quarter), which is down 3% from last year's value of $470 million.

Brookwood's analysis showed approximately 69 credit unions sold their card portfolios.

Asset Exchange's analysis also suggested more credit unions were better managing their card portfolios. Card penetration, long stagnant or slightly falling, rose again; total card assets increased by almost 9% to $26.1 billion while the percentage of cards in the total mix of CU assets also increased, from 4.31% for 2005 to 4.63% last year.

Hackney said NCUA's numbers only reflected the numbers that CSCU has been seeing for some time and these reflected the fact that credit union card programs not only could perform well, did better than the industry overall in many key areas.

According to the 2005 data, the latest complete set of data that CSCU has until later this year, credit union card portfolios have a higher percentage of their cards active than the industry overall (60% for CU portfolios versus just over 52% for portfolios overall), the percentage of accounts with finance charges (65% versus 56%) and are growing faster (9.2% versus than 5.8%). The CU card portfolios also have annual sales volume, and hence interchange, per account than the industry overall ($4,555 versus $4,427).

Where CUs lagged the overall industry in 2005 was in annual cash volume per account ($913 for the industry overall versus $442 for credit union accounts), average cash disbursements ($668 versus $492) and average outstanding ($2,705 versus $2,440).

Hackney blamed CUs for being slow to issue platinum cards and not marketing balance transfer programs for the lag, but indicated the preliminary data CSCU had for 2006 indicated CUs were catching up in those areas.

"So it's really just a myth that credit unions cannot compete with other issuers in cards. The fact is that they can and do," Hackney said.

But Tim Kolk, managing partner with Brookwood Capital, a card portfolio brokerage in Peterborough, N.H., pointed out that the relatively stagnant penetration percentage (it rose only slightly over last year) suggested the difficulty credit unions still have marketing their cards in the saturated credit card market.

Hackney and other industry executives have, in the past, pointed out that credit card penetration often lags CU membership numbers because most credit union members don't join credit unions for the CU's cards. But Kolk pointed out that might be a sign that the credit unions are not marketing the cards sufficiently.

"We have seen some strong card programs being used as a way of introducing the credit union to new members," Kolk said. "It might be that not enough credit unions understand how important their card portfolios are yet."

However Kolk emphasized, even as a broker, that Brookwood was pleased that more credit unions appeared to be managing their portfolios more strongly. "We think credit cards are a good asset and as brokers we can only do well if more valuable assets are considered for sale," Kolk said.

Rollie Penn, executive vice president with TNB Card Services, echoed Hackney's pleasure at the way credit unions have stepped up card portfolio management. He pointed out that the analysts' numbers had been adjusted for inflation and came in at almost 9%. If they had not been adjusted, the figure would have been 11%, which is tremendous compared to the industry's overall growth of just below 6%. Penn noted that the growth figure would be even larger if the card portfolios that were sold were backed out of the calculations, making it clear that the CUs that continued to hold and manage their portfolios, on average, did even better with them. Penn also agreed with Kolk that credit cards might still be too far down in the average credit union's mix of products and services, far below where the loans with the leading return on assets should be.

The fact is that credit unions, just like everyone else, tend to take credit cards for granted, Penn opined. Most people only pay attention to their cards when something about them doesn't work or when they're spending too much on them. But, as issuers, credit unions can't afford to be that complacent and need to be sure they understand how much of an asset they have in their card portfolio and how they can grow it. –dmorrison@cutimes.com