DALLAS -
Credit unions grappling with the question of whether or not to sell their credit card portfolios in 2008 will need to take a long hard look at their bottom line and reasons for selling, according to analysts who spoke to the Credit Union Journal recently.
Credit unions that sell their card portfolios do so for a variety of reasons, including the ability to offer a competitive card product and concerns over fraud, noted Dusty Bowers, senior VP and client relationship manager of TNB Card Services here.
But Bowers thinks credit union card portfolios are primed for growth, even in today’s market, because charge-offs and delinquencies among credit union card portfolios are relatively low compared to other issuers.
“The cost of funds has decreased, so credit unions could stand to gain 100 to 200 basis points of yield on their portfolios,” he said.
The issue that credit unions need to be concerned with, according to Bowers, is portfolio pricing, and specifically, risk-based pricing, which he believes is a more effective model than the traditional fixed-rate model that most credit unions offer.
“In an economic situation like we see today, risk-based pricing allows you to separate the risk levels and price them accordingly,” Bowers said. “Credit unions with fixed-rate programs should consider offering promotional rates designed to retain and attract members, which will keep their cards competitive.”
Bowers added that marketing efforts should also be increased to maintain “top of wallet share” among card members.
What Long-Term Gain?
Although competitive card pricing and fraud mitigation issues remain high on credit union agendas, the decision to sell credit card portfolios has to be weighed against potential service impact on members.
“Since credit unions typically know their members and have other financial relationships with them, I’m not sure of what long term gain they would achieve by selling off their credit card portfolios,” said Vinnie Calo, president of Fiserv Credit Processing Services in Florida.
“Consumers have come to rely on some type of credit card offering from their financial institution. Furthermore, finding buyers for these small portfolios could prove challenging,” he said. “In addition, credit cards are a source of fee income for the credit unions in addition to providing a valuable service to their members.”
Timothy R. Kolk, a managing partner at Brookwood Capital in New Hampshire, urges credit unions to take a hard look at the overall risk levels associated with having card assets on their balance sheet. Kolk said he expects to see an uptick in card portfolio sales by credit unions that want to offer the product under the credit union name, while eliminating the credit card fraud risk to the credit union.
“There may also be an uptick in sales because some credit unions may find themselves in need of capital or income, driven by other problems on their balance sheets,” he said. “That’s less a strategic decision than a way to meet an immediate need.”
Credit union boards will place additional scrutiny on such portfolios if the number of delinquent accounts increases. But many boards don’t recognize that card portfolios generate substantially more yield than other loan products, according to Kenton Potterton, director of credit services at PSCU Financial Services in St. Petersburg, Fla.
“While we aren’t seeing significant impacts directly on credit unions due to the mortgage problem, we expect some indirect effects to cause problems on other loan products,” Potterton said. “We expect some credit unions to sell their card portfolio and use the premium to offset those problems.”
Both Potterton and Kolk agree that credit unions that make the decision to sell their card portfolios do so in a manner that they feel is appropriate to their unique situation.
“If that isn’t done, the biggest paycheck in the world won’t overcome second-guessing later on,” Kolk said.
MORE
Read more about how to gather and use member feedback at cujournal.com and searching the following bolded terms in the archive:
Card Portfolio Sales Volume Down
Experts Say Card Portfolio Sales Trend Still Too Close To Call
For info on this story:
* www.pscufs.com.
* www.tnbcard.com
* www.brookwoodcapital.net
* www.fiserv.com
