Assessing a Card Portfolio's Value; Is Premium More Important Than Value?

Recent reports concerning credit unions choosing to sell their credit card portfolios have many in the industry clamoring to know “Who will be next and at what premium?” I’d suggest, however, that the paramount question to answer is, “Are such credit unions truly getting the maximum value from their card businesses?” Let me be clear, by `maximum value’ I do not mean the top-dollar price tag potentially garnered through a given sale. Rather, at MasterCard, we believe a card portfolio’s value lies in the number of additional relationships – or products-per-household (PPH) – it generates between a financial institution and its members or customers. Accordingly, cards should not be viewed as a mere commoditized component of a financial institution’s product mix. Nor should card portfolio managers simply rest at attracting cardholders then stimulating purchases, collecting fees or interest-payments to net revenue. Instead, financial institutions should treat payment cards as a critical entry point or springboard to help further penetrate customer or member accounts with products and services attuned to personal financial needs. In this way, cards are more than a mere revenue source to balance against P&L considerations, but instead a catalyst enabling the introduction or cross-selling of potentially more symbiotic financial service relationships such as saving and checking accounts, mortgages, auto and student loans, retirement plans, and small business credit lines. Consequently, the value of any given card portfolio becomes a construct of the financial institution’s ability to leverage such card relationships to hasten growth in overall PPH, thereby securing satisfied members of the institution’s full-assortment of financial services. No one can deny that competition in the payment card business is fierce. There’s risk exposure, marketing costs, transaction processing, and all of the other operational necessities required to make that portfolio hum. But the proliferation of card-based payments is the clearest indication that cards are a must-have in meeting and serving your members’ payment preferences and financial expectations. Let’s not forget, consumers have overwhelmingly embraced cards thanks to their unique benefits: ease of use, global merchant acceptance, security from fraud and theft, electronic budget management, and rewarding usage incentive programs. Credit unions, regardless of size, should not be so quick to forfeit the relationships or member connections afforded by issuing cards: in-branch or online banking interaction, direct mail and statement-based communications, an intimate understanding of a member’s financial preferences and practices. Take the `sell it’ or `don’t sell it’ consideration off the table for now. Partner with experts if need be to jolt and steady your portfolio’s performance. As the portfolio’s owner, its value is yours to discover and grow.