BOSTON – Officials with Kessler Financial Services, the firm that handles credit union card portfolio purchases for MBNA, and an MBNA official, confirmed this week that the firms are revamping the overall structure of the credit union card-purchasing program, partly in response to the increased competition for valuable credit union card business. We have been involved in this business for about 18 months and have entered into partnerships with about 30 credit unions currently, said Steven Fuld, senior vice president of Kessler Financial Services. "What we did is to say `ok, we have learned about credit unions' sensitivities, we have learned how to partner with credit unions, now it's time to take it to the next level,' " he said. " That's what we are setting out to do." The new package of card services will include card reward programs tailored to credit unions, new options in card design and processing and an expansion of the agent program option that will allow credit unions to keep their existing card portfolio while they partner with MBNA on marketing credit cards to their members who don't have cards. Currently, when a credit union sells its card portfolio to MBNA those cards and balances move from the credit union to the bank, explained John Zavoyna, senior vice president with MBNA. MBNA manages and markets to those accounts. In addition the credit union then enters into an agent agreement with MBNA and Kessler for the marketing of new accounts. MBNA accepts the risks and makes the marketing commitment to the credit union and the credit union makes money on each new account, he said. This new option will allow a credit union to keep its existing accounts and move to the agent relationship directly, he explained. But he added that some credit unions who initially expressed interest in that option were reconsidering it when they took into account the increased trouble of maintaining their own card portfolio even as MBNA marketed cards to the rest of the credit union's members. As before, the specifics of the marketing agreements and what marketing strategies MBNA will or will not use, such as the somewhat controversial balance transfer checks, will vary from credit union partner to credit union partner, Zavoyna said. Interestingly he said that some credit unions had applauded the use of balance transfer checks and relished the idea of a credit union essentially poaching the account balances of some of the larger issuers. "Some want us to use them more," he chuckled. Steve Railey, executive director of PSCU Financials' portfolio solutions program expressed doubt as to why a credit union would want to take what he called the "dual portfolio option" since it appeared to sentence the credit union's portfolio to a "slow death" from attrition over time. "It sounds like they are buying the credit union's portfolio but just stretching out the sale and not paying a premium for it," Railey said. Although he admitted that the option might be popular with some credit unions that neither wanted to sell the asset but also didn't want to make the commitment to managing and marketing it on their own. Railey agreed with the other sources for the story that indicated low credit card penetration among credit unions that offer cards was the great engine driving bank interest in these agent agreements and, he said, should be driving credit unions' interest in managing their own card program more effectively. Zavoyna pointed out that no credit union is among the top 10 credit card issuers in the U.S and that for the first time in 10 years, in 2001 credit unions in the aggregate actually had fewer credit cards than they had the year before. Fuld pointed out that, for example, a credit union with 50,000 members, with a card penetration of 15%, was seeing other credit card issuers already take the bulk of their members' credit card purchases. "This is where we can really help a credit union," with the new program, he said. Robert Hackney, president of CSCU, agreed that the fight for credit card use is a big part of the marketing battle and lamented that relatively few credit unions have taken the step of adding benefit programs to their cards. He didn't have statistics handy, he said, but was generally under the impression that many credit unions had not added any benefits for using their cards. He also called MBNA's program "extremely aggressive" and admitted that CSCU would step up its education programs to help credit unions better manage their portfolios themselves. He said that, "for whatever reason" the bulk of credit union card portfolio sales had not been among credit unions that process with Certegy. "Certegy processes 40% of credit unions cards," Hackney said, "but 40% of credit card portfolio sales have not been from Certegy members." "The credit union really needs to look at the portfolio from the point of view of their members, not their processors," Zavoyna said. Most Americans have three or four credit cards in their wallets and credit unions want their member to feel good about not only having the credit card but also actually using it, he explained. "Credit unions want to win the battle for what we call `wallet share,' " he said. That's why MBNA often ups credit union members' credit lines when it buys a portfolio, he explained. Not because it wants people to necessarily spend more with their credit cards, but because it wants them to devote a greater percentage of card spending to the credit union card, he added. As part of their stepped up program, Kessler and MBNA will offer the new card products and new benefit programs to both credit unions that sell their portfolios and those that opt instead for only an agent agreement covering the new accounts, Fuld said. In the latter case the new products and program will be available for both the credit union's new accounts as well as the older accounts that the credit union has decided to keep. The new products will include new card offerings, for example a Gold Card or a Platinum card, which often happens already, but also a benefit options package that will be new, Fuld said. Appearing to have taken a page from credit unions that opt to manage their portfolios themselves, MBNA will tailor card benefit programs to both include refreshed traditional offerings, like revamped travel offers, but also programs through which a credit union member can opt to earn credit union specific benefits, for example a better interest rate on a CD or a lower interest rate on a car loan or fewer points on a mortgage purchase. Fuld noted that the advent of the new benefit program should not surprise anyone since the company got the push to offer it from credit unions that had already partnered with MBNA or were considering it. Fuld said Kessler and MBNA had surveyed these credit unions and their members to ask them what would make their partnership or credit card experience better and then incorporated those responses. Fuld admitted that the market for credit union portfolios has gotten more competitive as time has passed, but neither he, nor Zavoyna would attribute the firms' new plans to a reaction to the competition. Instead, Fuld suggested Kessler and MBNA are attempting to capitalize on the affinity marketing and portfolio acquisition, strengths both share already he said. He described the firms' process of coming up with the program as " evolutionary," pointing out that both firms are constantly learning as they are working and examining what they do for ways to do it better. [email protected]