ST. PETERSBURG, Fla. – Many of the trends which characterized credit unions' card environment in 2004 will continue in 2005, according to card executives, presenting credit unions with many of the same challenges and opportunities. Steve Thompson, director of PSCU Financial Services Advisors Plus Group, expressed a cautious optimism that characterized many card executives who said 2005 should reveal the impact of some of 2004′s changes that could potentially rock their industry, such as the addition of American Express to the financial institution market and the possibility of more credit unions being able to issue Discover cards. PSCU Financial Services is the card processing cooperative for more than 500 credit unions that process their funds with First Data Inc. The Advisors Plus group helps member credit unions strengthen and grow their portfolios. "I think certain things are likely to continue," Thompson said. "I think there will still be a number of credit unions, particularly smaller ones, who will sell their portfolios in 2005. The pace will probably meet 2004′s," he said, "but I also think more credit unions will take advantage of the knowledge of how to keep and better manage their own portfolios." Thompson pointed out that 2004 saw a steady increase in the amount of expertise and research on card management available to credit unions from PSCU and other providers, a trend which he expected would continue. "Gradually I think we are demystifying the card issuing business," he said, "and as we make it less mysterious, we also make it more accessible to credit unions." One difference between 2004 and 2005 will likely be a slowly rising interest rate environment and this will probably influence more credit unions that have fixed interest rate cards to migrate to flexible rate products. "Rising interest rates will naturally shrink card margins and that will increase pressure," Thompson said. "But that should be something that credit unions can manage." The use of risk-based pricing and increasing the number of credit card products that credit unions offer are both trends that Thompson believed credit unions would continue into 2005. "We see a number of different attitudes toward risk-based pricing," Thompson said. "Many credit unions acknowledge that it is still somewhat controversial, but they also want a way to spread the risk more fairly throughout the portfolio." Other executives, particularly those from Certegy, said they couldn't speak directly to the coming card environment because the company is in its "quiet period" which the Securities and Exchange Commission imposes in advance of a company reporting earnings. But Glen Lee, senior vice president of TNB Card Services was willing to speak. TNB Card Services is the card servicing arm of credit union owned Town North Bank and because the firm both processes credit union card accounts and purchases them, Lee has a perspective that straddles the line between purchasing and holding portfolios. Lee estimated that a rising interest rate environment will help spur credit unions to highlight their reputation as consumer friendly financial institutions and places consumers can trust in their credit card marketing programs. "I think 2005 will see consumers become even more interested in finding card issuers who they believe they can trust," Lee said. "Security issues have always been important, but now how cards are managed and the relationship with the cardholder is becoming more important too," he said. Lee also estimated that credit unions would continue to become more sophisticated in 2005 as they evaluated their card portfolios and decided which way to go with them. "I think a lot of confusion that credit unions have had about card management is beginning to lift," Lee said echoing Thompson's views. "We are gradually hearing from more credit unions who are interested in soaking up some expertise in card management and are looking for some direction and I expect the trend will continue in 2005." Two years into its program of purchasing card portfolios, TNB reported that it has $80 million in outstanding balances. In 2003 and 2004 the Dallas-based firm purchased $69 million, an average of $1.5 million purchased. -

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