TAMPA, Fla. — Suncoast Credit Union is the first federally insured CU to introduce credit card loan participations, a program the issuer says meets the needs of institutions wanting to jump back into credit cards with less risk and expense.
Rolled out quietly at the end of 2013, Suncoast says Credit Cards for Members provides a way for CUs to start their own credit card programs quickly, while offering Suncoast a way to grow its credit card outstandings.
In exchange for a revenue split, Suncoast handles the work of running a full-service credit card program-underwriting, card application and issuance, payments processing, member service, compliance, collections, marketing and more.
CUs partnering with Suncoast are issued their own BINs and then participate out a large percentage of their portfolio.
"We will typically do an 80%/20%, or 90%/10% split," said Jon Rasmussen, VP of card services. "So we retain 80% to 90% of the outstanding loan balances."
The percentage, as well, dictates the participating CU's share of expenses. "If they retain 20% of their portfolio they share in 20% of their expenses, and keep 20% of the revenue," Rasmussen said.
Two credit unions have already signed on: the $114 million PBC CU in West Palm Beach, Fla., and the $60 million SMW FCU in Lino Lakes, Minn.
Suncoast introduced Credit Cards for Members after conducting research that found about 3,000 CUs don't issue their own cards-they either don't offer credit cards, use a third-party processor or have sold their portfolios.
"A lot of credit unions sold their portfolios seven to eight years ago and their non-compete clauses are expiring," said Rasmussen. "Credit unions want to get back into the mix because credit cards are a very attractive loan today."
Want To Jump But Lack Infrastructure
Many want to jump in but lack the infrastructure to run a credit card offering, he said. "They also get a very competitive card-8.9% fixed, for the best credit, with cash-back or bonus points rewards."
The VP said he expects Suncoast, which recently converted to state and community charters, will double the size of its 200,000 account, $600 million credit card portfolio within the next five to seven years.
"Right now our philosophy is to look for credit unions with $100 million in assets or more," said Rasmussen, who could see Suncoast working with CUs with up to $2 billion in assets. "Typically credit unions with $100 million in assets have from 7,000 to 10,000 members, and we think we can get a 32% to 33% penetration-so a minimum of 2,000 to 3,000 accounts per credit union."
While Credit Cards for Members allows Suncoast a way to dramatically build credit card outstandings, Rasmussen said Suncoast also headed down this path to help CUs.
"I think a lot of credit unions prefer dealing with a credit union, as opposed to a third-party processor. At least that is what we heard in discussions with credit unions before we got Credit Cards for Members going. And we do all of the work, not part of it."
PBC CU sold its credit card portfolio about ten years ago and now wants back in. SVP/COO Shannon Duran said working with another CU on its card program is one of the biggest reasons the shop aligned with Suncoast in April 2013 to pilot the program.
She said Credit Cards for Members is a "safer and easier" way for PBC to test the waters again. "We realize members want this attractive product from us and that we can generate more loan volume," said Duran. "But this is a riskier product, and by going with this participation we can balance reward with risk."
Since launching the program the credit union has issued 745 cards with the goal to issue 1,000 annually. Outstandings are now at just over $1 million.
Another reason PBC chose Suncoast is that the CU can buy back its portfolio within three years, not pay a premium and not have to reissue cards. "In three years we may find that we are able to take this back in-house," said Duran. "And we can do that without any impact to our membership-not have to re-solicit them and reissue cards."
Suncoast partners with FIS for transaction processing and cardholder service. Leveraging FIS' call center means Suncoast may not have to add member service personnel to keep up with this program as it grows. However, Suncoast does expect to add to its credit card staff.
Took A Few Years
Rasmussen explained that it took NCUA a few years to approve Suncoast's program, saying the CU had been considering the option for a while.
"The agency is obviously concerned about an unsecured product and we are a big credit union," said Rasmussen, who pointed out NCUA is capping the program at no more than 20% of the CU's assets.
NCUA confirmed that Suncoast is the first federally insured CU to introduce credit card loan participations, stating the agency is not aware of any other open-end credit card participation programs.
As far as allowing other CUs to offer a similar program, NCUA Communications Specialist Ben Hardaway said the regulator would evaluate each program on its merits, as well as the credit union's capabilities and expertise in managing the program.
"It's important to note that open-ended participation programs present additional risks to the traditional closed-end participation program, necessitating a more in-depth review of the controls and risk management practices of both the servicer and the participating credit unions," said Hardaway. "The agency would take appropriate supervisory action where necessary when a program is not soundly administered."
NCUA has been increasing its attention on loan participations, expressing concern with the offerings spreading risk among credit unions, exemplified by the failures of credit unions such as Norlarco CU and Telesis Community CU, whose loan participation programs cost their partner credit unions millions.
"Yes, this is unsecured loan participation versus secured," acknowledged Rasmussen. "And, when we grant someone a credit line for $30,000, they may use it all or just $500. We have to closely look at the liability side."
Rasmussen said the credit union's underwriting team and guidelines have performed well for the CU, even throughout the recession. He expects that will continue. "We do a very good job of risk-based lending."
Suncoast will monitor the credit line usage and outstanding balances of the portfolios of the participating credit unions and report back to those credit unions each business day. "They will always know their liability, as will Suncoast."
Rasmussen believes Credit Cards for Members will be successful and appeal to credit unions across the country. He added that Suncoast hopes to someday be able to offer it to CUs below $100 million in assets, but economies of scale need to be improved to deliver a program to this segment.
"We think we will have six to eight credit unions enrolled with us by the end of the year," concluded Rasmussen. "We are seeing a great deal of interest, and that is after a soft rollout and no marketing."
