As Card Market Continues to Mature, MBNA Opens Up A Little

ARLINGTON, Va. – MBNA, a leading purchaser of credit union credit card portfolios, has purchased the credit card portfolio of the $345 million Franklin Mint FCU headquartered in Broomall, Pennsylvania. As with other recent purchases, the bank’s ability to offer American Express branded cards played a role in the sale. “When we began this process, I noted there were three cards in my wallet: our credit union credit card, American Express and a rewards card,” said John Unangst, CEO, for the credit union. “When I realized that we could offer our members all three with MBNA, I knew we had a powerful, competitive partner.” The purchase brings MBNA a roughly $16 million credit union card portfolio, according to NCUA records, and it also highlights a bit of the new ground on the credit union card market scene the card giant has begun to occupy. Transparency For A Changing Market It’s no secret that the market for credit cards overall has been consolidating, cooling and maturing for a while now. According to cardweb.com, a Web site which tracks credit card information, the average American household has just over 13 cards; five bank credit cards, seven retail credit cards, and two debit cards. As most Americans now have as many credit cards as they want or for which they qualify, monoline card issuers such as MBNA have found their business steadily harder to grow. Even affinity marketing, in which MBNA is a leading pioneer, has been slowing. Affinity marketing is the approach in which a card issuer issues a card in conjunction with a professional society, alumni group, or other organization with which the cardholder has a particular tie. The slowdown has forced the card issuer to both offer its affinity partners which are not financial institutions more products than just cards in an attempt to diversify and to conduct its first “buy-out” of some of its employees to reduce the issuer’s overall expenses. The slowdown has also forced the notoriously media shy card issuer to open itself up more and card executives have been quick to point out that the firm doesn’t fit the two-dimensional stereotype of the card buying shark firm that has been portrayed so often. Hal Erskine, a senior executive vice president of the firm and the executive overseeing MBNA’s credit union division, is anxious to share what he believes is the rest of MBNA’s story, the part that he maintains too few people know and the part that, in his view, makes the card issuer reluctant to participate in card portfolio sales handled solely by brokerage firms. “It’s not that we can’t compete, because we definitely can and I would put our card package up against anybody’s,” Erskine said. “But if our entire offer is boiled down to a square in a grid of a matrix of card portfolio offers, that strips out so much of what makes our card approach unique – and a better approach for the credit unions we want as partners.” Rather, what Erskine and other MBNA executives most earnestly want – the goal that is the entire focus of most of their initial presentation – is for credit union card executives to come to the company’s headquarters and card operation in Wilmington, Delaware. Only there can a credit union card executive get a feel for the personalized service that Erskine feels truly makes MBNA’s approach the strongest fit. In many ways Erskine seems at once both ill suited and well suited for the task of pitching MBNA’s approach; think Will Rogers talking call resolution and APRs, think West Peco, Texas meets Wall Street. But his aw shucks earnestness explaining how MBNA is different gives what he says is a depth of conviction that the average sales rep likely doesn’t have. What makes MBNA’s service approach different, Erskine says, is that the card company is willing to take such a deep back seat to the credit union that its employees will go out of their way to help the credit union cross sell its other credit union products to its members. “It’s not just that if a credit union member picks up the phone to call us he or she gets a live person 24 hours a day, seven days a week and 365 days a year,” Erskine explained. “It’s that 95% of the time that caller’s issue will be resolved before the caller hangs up and if that cardholder has a problem with APR or a competing rate our staff can work with that caller right then to keep the account.” Erskine is also proud of the service that, he explained, will connect a cardholding member with a credit union representative, seamlessly, if that credit union member expresses an interest in another credit union product. Why might a credit union member ask about other credit union products when calling about their credit card? Well, because MBNA has begun offering its credit union partners and potential credit union partners a program which allows credit union members to use their credit card reward points to pay down the principal on their mortgages and other loans. The Principal Rewards product is essentially a cash back rewards program that accrues points at the rate of one point per every dollar spent in net retail purchases and then allows the member to redeem those points by making payments on their mortgage principal or even into another savings product. The program also allows the member to automatically redeem points every quarter at the rate of 2,500 points to $25.00 applied to the principal or deposited in a members account or paid on another loan. Essentially, MBNA appears to have figured out what credit union card advocates, its competition, has been saying for a while now: credit cards are fundamentally a relationship product and the best way to keep the cardholder using the credit union’s card is to integrate it into the credit unions other product and service offerings. But what about the problems? After all, isn’t this MBNA we are talking about here, the company to whose logo consumer advocates would like to attach the theme from the Jaws movie? The company who has been occasionally excoriated for some of its interest rate practices which consumer advocates have denounced as predatory and abusive? Yes and no, according to Erskine and MBNA’s media spokesman, Jim Donahue. Donahue pointed out that any problems that have occurred have been overwhelming the exception rather than the rule and that is unfair to judge a company which might have millions of satisfied customers on the problems that a few have had. Alright, but what if some of those few are a credit union’s members, how would that make the credit union look? That wouldn’t happen, Erskine pointed out, because MBNA is committed to treating its partner credit union’s cardholders differently. For example on interest rates, MBNA says its credit union partners’ cardholders will never face the high penalty rates that sometimes have characterized the way MBNA has dealt with its non-credit union cardholders. That’s because MBNA is committed to observing the NCUA’s interest rate cap of 18% and will not raise the interest rate on its credit union cardholders higher than that. Erksine also went out of his way to point out that MBNA is anxious to work out payment arrangements with cardholders who fall into the serious medical problems or job losses that characterize almost all really serious cardholder problems. “We have people trained to work with our credit union partner’s cardholders,” Erskine said, “and if we detect that there is a real problem we are going to offer payment arrangements earlier, not later. It’s not in our interest.” Additionally, according to Erskine, MBNA has become steadily more selective about the CU card portfolios it wants. While he stressed that the firm will talk to any credit union about it’s card portfolio, Erskine explained the card issuing giant will usually only bid on the larger ones because the cost of evaluating a portfolio and then going through the purchase and conversion process makes it prohibitively expensive to bid on every portfolio. The bottom line, according to Erskine, is that MBNA has partnered with over 80 credit unions now and has worked with each of them to expand their card offerings and build their card portfolios – to their benefit and the increased satisfaction of their members. “What we really want is for people to give us a chance,” Erskine said. “Consider us and let us make our best case. If we don’t have a fit, we don’t have a fit, but give us a fair shot.” [email protected]