To Sell or Not To Sell

Credit card portfolio sales demand proper evaluation to ensure a positive outcome.

 
 

This year approximately 100 credit unions will evaluate whether top sell their credit card portfolios, which includes getting market prices for existing accounts. This option is important for some credit unions as they manage bottom lines, work to control credit and operational risk, attempt to increase capital levels, plan for liquidity needs under various scenarios, and determine the best strategy to deliver each product to members.

Since 2000, more than 400 credit unions have sold their card portfolios. Almost all have been happy with the decision and keep renewing their agent relationships, but a few have found the partnership did not meet their needs going forward and decided to become issuers again. Although there are no guarantees that any decision will work forever, by carefully structuring its analysis a credit union can maximize the odds a sale will go smoothly and the multi-year agent relationship with the buyer will remain strong and productive.

Here are four critical considerations to undertake before fielding purchase offers for a credit card portfolio:

1) Strategic purpose
Why is this decision being explored? Unless the reason is understood, then it is nearly impossible to objectively analyze proposals by potential issuing partners.

2) Financial comparisons
Selling a card portfolio generates both upfront revenue (in the form of a premium) and ongoing partnership revenues. In addition, the credit union has the ability to reinvest the proceeds into other earning assets. What is the combination of these revenues worth?

3) Know what you gain, know what you lose
Properly structured, a card portfolio sale can include many advantages to the credit union and its members, but there are also tradeoffs. Everyone involved needs to know the pros and cons before the decision is made.

4) Overpaying for advice
Before embarking on this analysis, it is critical to understand how and how much each party in the process is getting paid. Believe it or not, many “free” portfolio brokers actually get paid handsomely by the portfolio buyer. This hidden fee can be substantial and unnecessary. Don’t believe that anyone works for free.

Properly structured and negotiated, a card portfolio sale can be a positive experience, but it requires a careful analysis and a plan before asking for any proposals.

 

 

 

 

Oct. 25, 2010


Comments

 
 
 
  • One factor that's almost always overlooked or glossed over is branding and service standards and the potential for negative impact on a CU's brand.

    Credit cards are one of the most complex products CUs offer, and members will need support. What happens when they call the number on your CU card and it's answered "Bank of America" (common true story, unfortunately)? What happens when a member has to use someone else's web site to see their card balance, and it's no longer integrated with the rest of their CU accounts?

    Sure, the CU can make a few bucks on a portfolio sale, and sometimes it's the only way to keep a viable credit card program, but how often is it worth the huge loss in loyalty and differentiation?
    Brian Wringer