DES MOINES, Iowa-After exiting the credit card business for several years, a growing number of CUs are relaunching their cards programs via a third-party arrangement that gives the credit union better control over servicing.
That's what The Members Group has noticed over the last year or so, as several banks have ended their agent-issuing relationship with credit unions after contracts have expired.
"We are seeing more credit unions want to relaunch but they don't want to have the loan on their balance sheet and they don't want to build up the staffing expertise," said Jeff Russell, senior advisor. "They have been out of the credit card business for many years. They don't have the credit card expertise on their staff, and they don't want to dedicate the time, human resources, analytics and marketing needed to run what is a fairly complex product at a time when there is a great deal of competition and growing compliance demands. They would rather focus the credit union's resources on areas they feel they do best."
TMG Financial Services is the agent issuing arm of TMG, and since 2007 has built about $135 million in credit card balances and 65,000 cards on behalf of a little more than 50 credit unions.
"Since 2007 we have purchased portfolios from credit unions and then reissued in an agent-issuing environment. But in the last 12 to 18 months that has picked up."
Three To Five-Year Plan
Russell said credit unions realize it will take three to five years before a cards program that is starting again from zero accounts will become profitable if the CU takes it back.
"With this arrangement we work closely with the credit union to relaunch their program."
What has boosted interest, too, said Russell, is that credit unions leaving the bank relationship are seeking to start another agent-issuing relationship with an organization that's knowledgeable about credit unions, is CU friendly, and allows credit union staff to provide a higher level of card service to members.
"In the typical bank agent-issuing environment, if a member calls in or stops by to ask about a card transaction, staff have to give the person an 800 number to call," said Russell. "But credit unions deploy our web-based app and have access to the same information our teams do. They can call up the transaction in question to see what happened. We also allow credit unions to do underwriting at the branch, but it is with our criteria."
TMG and the credit union share revenue based on the number of new accounts opened, share a portion of the interest income, as well as a portion of the interchange. "As the program grows, the credit union gets compensated more," said Russell.
General Mills FCU's Story
The $300-million General Mills FCU, in Minnetonka, Minn., originally sold its credit card portfolio to a bank because managing the program required comprehensive resources it did not have. But as the contract was expiring over a year ago, the $300-million CU began seeking a better arrangement, even though it still did not want all the responsibilities of bringing a program back in-house.
"We wanted to do better for our members," said Marlo Hirl, VP of marketing. "But taking a program inside again requires so many resources to maintain and do really well. It's successful now and we have a good solid product members want."
In a year, GMFCU's portfolio added nearly 1,200 accounts. "We worked with TMG Financial Services to establish an aggressive goal. In two years, we wanted to exceed the number of accounts with our previous partner. We are certainly on pace to do that," said Hirl.
In Carson City, Nev., Greater Nevada CU's relationship with an agent-issuer was terminated when the bank decided to exit the business.
"The end of that partnership gave us the opportunity to evaluate whether we wanted to get back into issuing or find a partner with a product that aligned closely with our values," said Tom Wambaugh, VP of member services at the $450-million GNCU. "At the end of the day, we knew we had to work with a partner that could provide the complete product that we couldn't."
Since turning to TMG Financial Services, in just under a year the CU has brought in about half as many cards as it ever had, said Wambaugh. "To do that is less than a year is pretty good."
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