WEST PALM BEACH, Fla. -To sell or not to sell a credit card portfolio-that is the latest question facing more and more credit unions. All sides generally agree that certain factors such as the liquidity crunch credit unions faced toward the end of 2000 and the change in the competitive landscape have contributed to the growing trend of credit unions selling their credit card portfolios. TNB Senior Vice President of Sales and Marketing Glenn Lee adds yet another big factor for the "sales"-rush. "It boils down to economics, this trend is not because credit unions suddenly want to sell but rather someone out there is now willing to buy it," said Lee. Last year credit card companies mailed a record 3.5 billion solicitations of which only 0.6% responses were returned, representing a 40% decline from 1999′s 1% response rate. Enter such firms as InfiCorp Holdings, Inc. a subsidiary of First National of Nebraska; MBNA and others interested in partnering with credit unions for growth opportunities. South Bend, Indiana-Based Teachers Credit Union sold their $65 million credit card portfolio to InfiCorp last year. "We didn't believe that our strong relationship members were using our card. It wasn't competitive and we weren't willing to do things like teaser rates etc that went against our philosophy," said TCU Senior Vice President/Chief Financial Officer Amy Sink. "Really, the two drivers to sell were the competition and credit risk. Fifty percent of losses were coming from our credit card portfolio that had only 10% of balances- it was just too much." It took four months from decision to conversion. A year later TCU has beefed up its marketing budget and is expanding by building branches and providing members more ATMs. According to Sink, credit card numbers have been increasing every month. "Although a very involved complicated procedure it is important that you not only have a work plan for the cash but that you make sure what you negotiated and agreed upon is in the legal documents," said Sink. "A big part of our contract is that we would be member advocates. That meant allowing us to have a peer-to-peer arrangement, so we can speak directly with a manager etc. We feel very strongly that our role is to be advocates for our members and it has worked out very well for us." It is slowly starting to impact such credit union owned organizations like Payment Sytems for Credit Unions. "We've seen roughly a half dozen of our members selling their portfolio," said PSCU Chief Marketing Officer Brian Crawford. "They range in size from the tiniest 2,500- 3,000 cards to the large – Desert Schools is the most recent example. We're recognizing that this is a legitimate service option for the credit union market." "The bottom line issue is that credit union's have one core product advantage- that they are a retail consumer-based business," said Lee. "Unsecured loans are a service for members. With most members generally defining their primary institution as the one they do the most transactions with, it doesn't make sense in this transactional environment to sell what can be a profit generator. Especially since credit unions live and die with member relationships." According to Lee, selling can be a short-sided approach because too often credit unions get this influx of capital but then waste it by not using it for something with a better return. "Any CFO can model out the credit card portfolio so it appears on surface not to give enough return," said Lee. "But the fact is you can't find anything with a better return. It would take credit unions making some improvements such as taking a more aggressive marketing stance and looking at risk-based pricing but it can be done." Consumers are piling on credit card debt. According to the Federal Reserve, in April, American consumers added $9.2 billion to total revolving debt compared to $7.0 billion for April 2000. Since the beginning of this year consumers have piled on $34 billion in revolving credit, mostly credit card debt. So far total U.S. credit card debt stands at $670 billion. For credit unions to build their credit card portfolio, InfiCorp Director Keith Floen says there are a few core building blocks to consider: Technology – Make sure the credit union can use the technology across all processes and turn it into actionable data. The key is being able to leverage the information for the individual member, such as allowing pricing at the individual member level. People – Have a large enough, qualified talent pool available that is 100% focused on credit cards and is empowered to manage the product from stem to stern. Marketing- Credit unions must have the courage to invest in marketing their portfolio. That means being willing to spend half of their marketing dollars to remarket to existing members because their needs change or they are constantly getting other offers so credit unions need to market accordingly. Management focus – There has to be a commitment from management that the credit card focus will be consistent. Management will have to continuously look in the rear view mirror and re-evaluate credit card portfolios at least quarterly. Before any decision to sell is made Crawford advises credit unions to really understand the current profitability of their credit card portfolio and make strategic long-term decisions. "Credit cards are a complicated product line that are more management intensive and high risk products. If a credit union is not prepared to make full investment to be a full-service player then they may be better off seeking a partner," said Crawford. "But be careful of the partner you select because that partner will be a key part of your service bundle. Look at their charter, pricing philosophy and financial strategy. Understand how they will service your member and find out if some of your member relations are at risk to trickle off to the partner. Remember it is a long-term relationship so partners must share the same business philosophy or the members will be at risk. " [email protected]