By Nicole Volpe, The Financial Brand
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As margins tighten and balance-sheet pressure builds, more credit unions are weighing whether to continue issuing credit cards on their own or to sell their portfolio and partner with an agent issuer. Entering an agent relationship can give the institution and its cardholders access to program features and operating advantages typically reserved for the industry’s largest players. But there are tradeoffs. The question is, how does an institution know when, or if, to make a change?
Credit union strategists recognize that credit cards can be strong drivers of member value and revenue. They put the institution’s brand at the center of an account-holder’s daily spending, helping cement primacy; and they’re a source of recurring lending and fee income. But running a card portfolio can also be expensive, capital-, and risk-intensive, and requires expertise many small and midsized institutions either don’t have or can’t sustain.
For credit unions, the issue plays out amid steadily more challenging industry economics. Since 2000, even with significant consolidation, average return on assets has fallen from 1.0% to 0.6%, a 40% decline. Today’s institutions may on average be much larger than they were 25 years or so ago, based on membership and assets, but they’re also more costly to run: On a per-member basis, average expenses have grown faster than fee and margin income combined.
As a result, many credit unions are seeking greater overall efficiency. And moving cards from in-house to agent programs may seem like an eat-our-cake-and-have-it-too option — one in which balance-sheet exposure is swapped for stable fee income and operating efficiency while retaining branding and member engagement. But the shift does not come without trade-offs, including loss of in-house control, which is a shift in decision-making authority.
Here are five questions credit unions can ask themselves as they assess the pros and cons of making a change…