Why Few CUs Are Playing Cards
After years of being restricted to offering only Visa or MasterCard cards to their members, credit unions at last can offer Discover and American Express. But for a variety of reasons, industry experts report that credit unions aren't lining up to offer them-so far.
Card Services For Credit Unions (CSCU) has 3,400 member CUs. The president of CSCU has heard of just one credit union expressing a desire to offer an American Express card to its members, and even fewer looking to add Discover cards.
"There has been no interest in Discover; it is the lowest-regarded of the four major card types," Robert Hackney said.
Hackney's answer typified the responses The Credit Union Journal received when it asked some of the major credit/debit card processors if there has been any movement towards adding American Express or Discover cards since a recent lawsuit cleared the way for CUs to do so. Representatives from TNB Card Services, PSCU Financial Services and Encore Electronic Services Cooperative said they have received few inquiries about AMEX or Discover, largely because the cards are accepted by fewer merchants than Visa or MasterCard.
Scott Wagner, executive vice president for TNB Card Services, said his company processes for 450 CUs. He said there has been "no interest" in the new alternatives.
"Discover has no international presence," Wagner explained. "Credit unions are all about serving their members, and members are not knocking down their doors asking for a Discover card. It is not as widely accepted."
Kent Potterton, director of credit services for PSCU Financial Services, said he has seen only a limited number of inquiries.
"Those that did wanted to pick up that many more members or penetrate that much more deeply into their membership," he assessed. "They wanted to make it available for those members with a preference."
Neither AMEX nor Discover are "necessarily more desirable," Potterton added, and "We definitely are not seeing credit unions offering those cards instead of Visa or MasterCard."
The reason, according to Potterton, is CUs have not heard a compelling reason to change or add. "Some people like AMEX because it is seen as a bit more prestigious, but Visa is coming out with [its] signature card, which will be a competitor," he said.
Tom Reed, CEO of Encore Electronic Services Cooperative in Virginia, said part of the reason for the lack of interest is the option still is new. "Many credit unions haven't even looked at it yet."
Reed cited the existence of other Visa- or MasterCard-related lawsuits, as well as the uncertainty regarding Wal-Mart's potential entry into the credit card space, as further reasons for the slow adoption. He noted there is "nothing to prohibit CUs from getting into American Express or Discover, but the whole ATM/debit space will change in the next two to three years. It is an evolving market."
PSCU FI's Potterton does not foresee a likely scenario for AMEX or Discover cards to become more popular with CUs. He said one option would be for the credit union issuer to make more income from those cards compared to Visa or MasterCard, but he noted this would require the card company to charge more on interchange fees, which would further reduce the number of merchants willing to accept the card.
"If there were to be a key feature offered by American Express or Discover that was not quickly matched by Visa or MasterCard, that would be a differentiator," he said. "But, as with most financial products, it is difficult to maintain a differentiator or a competitive advantage because other companies adapt so quickly."
TNB's Wagner said it would take "some compelling value propositions from Discover or American Express that credit unions are not getting today from Visa or MasterCard" to ignite a change. "Credit unions are getting acceptance and they are getting the protection they need from a security perspective from Visa and MasterCard. There would have to be something that is going to be compelling."
CSCU's Hackney said CUs will not offer AMEX and Discover in large numbers unless "demanded" by members.
"Until that happens, there won't be much interest. Cards are a very mature industry-everyone's got three or four general purpose cards in their wallet. Out of 3,400 CUs, I've heard of one that's expressed interest in American Express. The numbers speak for themselves."