Renewed Interest In Card Issuing A Trend, But Reasons Vary, Consultant Says

More banks and credit unions are considering getting back into credit card issuing after selling their portfolios over the past four to seven years, but their reasons for doing so vary, notes Tim Kolk, owner of TRK Advisors, a Peterborough, N.H.-based provider of portfolio-consulting services.

Since 2004, some 400 credit unions have sold their portfolios, and at least 25 thus far are looking to get back into the business, he says. For credit unions in particular, their portfolio-sales contracts are starting to expire, giving them an opportunity to re-evaluate their card strategies, Kolk says.

“Banks sold earlier than credit unions, so there’s less of a bubble but more of a flow,” he says of portfolio-management contracts expiring.

Last week, Tucson (Ariz.) Old Pueblo Credit Union signed a credit card processing deal with PSCU Financial Services to facilitate its re-entry into the cards market, one of dozens of credit unions reversing earlier exits from the cards business (see story). Among banks, Regions Financial Corp. and Banco Santander SA's Sovereign Bank are buying back their portfolios from Bank of America Corp.

Earlier this year, BofA decided the agent-issuer business was not core to its goal of building deep relationships and began the process of exiting those relationships, spokesperson Betty Reiss told PaymentsSource in a Dec. 2 email. “In many cases, our financial-institution business has served predominantly single-service card customers with limited opportunity for Bank of America to do more business with them,” she said.

Financial-institution interest in getting back into card issuing is having a positive impact on card processors, some of which were adversely affected by the issuer consolidation (see story).

Among the top reasons issuers might want to get back into card issuing include use of rising liquid deposits to get more credit lines on their balance sheets, better control of member and customer relationships, and potentially attractive earnings, Kolk says. “It has a good bottom line,” he says.

But institutions should perform their due diligence before jumping back into card issuing, Kolk advises. “It’s important that an institution has a good level of capital because it’s not a cheap thing to do,” he says. “It remains one of the riskier lending products.”

Some issuers might see credit card issuance as a way to offset reduced revenue stemming from the Federal Reserve Board’s decision to cut debit card interchange essentially in half (see story). But Kolk does not advise institutions to take that into account in their credit card decision-making.

“The thought might be on the table, but the math doesn’t really support that,” he says. “It really needs to be a standalone decision–can the credit card stand as its own viable product?” 

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