The credit card success of Pacific Service Employees Credit Union is the latest evidence that there is still room for small issuers.

Using the services of a San Francisco advertising agency and prescreening techniques similar to those available to the industry's biggest players, the credit union has signed 7,000 cardholders, who have brought $10 million in outstanding balances.

Not much by the standards of a Citicorp or BankAmerica, but a significant piece of new business for the $400 million-asset institution that is chartered to serve employees of Pacific Gas and Electric Co.

21% Sign-Up Rate

In a 16-month direct mail campaign, Pacific Service attracted 21% of the members it targeted. Ordinary credit-card mail solicitations generally elicit about a 5% monthly response, though this figure is not directly comparable to Pacific Service's campaign.

The credit union was able to break even on its Visa program within 7 1/2 months, rather than the year that had been forecast.

"We attribute its success to a clear focus on our target market, a better-than-market product, and attention-getting mailings," said Noelle Fischer-Herbert, senior vice president of marketing for Pacific Service, which is based in Concord, Calif.

Pacific Service used stringent prescreening to target 16,000 of its 40,000 members.

Of the four initial mailings that went out to credit union members between last May and September, three targeted this prescreened group. A fourth mailing went to about 17,000 other qualified members with good credit who didn't make the first cut.

Pacific Service is not alone among credit unions that see a golden opportunity in credit cards.

By the end of 1992, 33% of the 13,000 credit unions were marketing credit cards to their members, up from 29% in 1991 and continuing a steady rise. But those offering credit cards tend to be larger and account for 80% of total U.S. credit union membership, according to Credit Union National Association spokesman Jerry Karbon.

In other words, eight out of every 10 of the 64 million credit union members can get a credit card from the institution they belong to.

RAM Research Corp. of Frederick, Md., said Digital Employees Credit Union in Massachusetts was the fastest-growing card issuer in the first half of the year. Its portfolio rose 85% to $49 million.

LMSC Federal Credit Union in California ranked second, increasing 82% to $28.3 million.

Ms. Fischer-Herbert at Pacific Service said pricing may have had more to do with its Visa program's success than the members' affinity through their workplace, Pacific Gas and Electric. The interest rates are 14.9% on standard cards and 13.9% on gold cards. There are no other fees if holders maintain a balance or purchase items monthly.

An Automatic Edge

Still, marketing experts say the high degree of loyalty among credit union members gives these institutions an automatic marketing advantage over bigger, more impersonal organizations.

"Credit unions are a natural affinity group," said Keith Floen, senior vice president and manager of card programs at the Credit Union National Association in Madison, Wis.

"One phenomenon of credit unions is that they have a very truncated process - they tend to have a very focused philosophy," said Bob Wilcox of Wilcox & Associates, the agency that worked with Pacific Service on the marketing plan. "We can run a project with as high a level of profitability because decisions are made quickly and cleanly."

$10 Billion Outstanding

Credit unions remain a relative small market force. Together they represent about $10 billion in outstanding balances, or about the equivalent of BankAmerica Corp.'s operation, which is the sixth largest in bank cards.

Credit unions' total consumer installment credit totaled $94 billion at yearend 1992, making up 13% of a $753 billion market. The credit unions were dwarfed by commercial banks' $332 billion, or 44% share. About half the credit union outstandings were in auto loans.

"Banks will argue that credit unions are taking a bite out of their business," said Mr. Karbon at the Credit Union National Association. "But in credit cards, nontraditional products like AT&T [Universal Card] and the Discover Card are making much bigger inroads."

Mr. Floen expects the popularity of credit unions' cards to grow, building on the institutions' close ties with members. There will also be increasingly attractive pricing and rate offers, he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.