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Should Payments M&A Activity Trigger A Review Of Your Credit Card Operating Model?

A look at whether your current credit card program is providing the digital capabilities members expect.

The theme in 2019 seems to be merger and acquisition (M&A) activity as three significant deals have taken place in the payments space: Fiserv and First Data Corp, Fidelity National Services and WorldPay, and Global Payments and TSYS. These deals enable legacy payment providers to broaden their reach into new products and markets to more effectively compete with the latest emerging fintech startups.

The downside, however, is that during a merger, a substantial amount of time, money, and employee resources are used to transition and integrate two companies into one entity. The massive amount of time and resources dedicated causes distractions and challenges for the newly merged entity as it seeks to provide the latest innovations such as artificial intelligence, omnichannel solutions, and digital banking services to current financial partners. Financial partners are left to wonder how the newly merged company can keep up with the new competition’s cutting-edge technology, if they will still be a priority, and how the expense environment may impact the service quality they have previously experienced.

The recent M&A activity in today’s market presents an ideal opportunity for credit unions to pause and reconsider one of their most critical payments-related offerings: their current credit card program. Credit unions who take the time to weigh the pros and cons of different operating models may find that an outsourced program best fits their needs.

Operating Models

There are two main credit card operating models from which a credit union can choose based on their capabilities to own and manage the card assets (self-issuing) or their interest in not owning the card assets (outsourcing). With a self-issue model, credit unions have 100% total control of the program, thus realizing all related revenues. However, the model includes taking on all the associated risks and expenses. They will take on the challenges of new compliance regulations and operating expenditures. When launching a new card program, expenses associated with the setup can be cost prohibitive, with the first couple of years resulting in negative profitability.

An outsourced model or agent banking relationship, however, allows for a lower-risk revenue stream without having to build or manage the infrastructure to support the business. With an agent banking relationship, the credit union will have a partner in the development of the credit card program and end marketing/servicing to their member base. Credit unions need to conduct a thorough assessment to determine the best operating model that will fit their needs.

Other Considerations

All models should ensure that credit cards are considered a strategic priority, with support starting from the top of the house down. Credit unions that choose to self-issue need to compete with the national issuers’ product offerings as to not misalign their cardmember-focused strategy, which should be to provide a complete card product suite offering the best products and services to their cardmembers.

Credit unions should also consider identity theft and fraud support services (such as emergency card replacement and geolocation capabilities), bilingual services, strong retention strategies, and innovative digital marketing capabilities.

Digital Strategy

Whether self-sourced or outsourced, employing a comprehensive digital strategy is a critical part of a successful card program in today’s market. Consumers expect information wherever they are and whenever they want, with many turning to digital channels for information before making an application or purchase decision. A robust digital strategy helps credit unions target potential cardmembers at various stages in their decision-making process from initial information search to final purchase decision.

The sheer number of digital channels in which a credit union must be present to compete may be intimidating for those running an in-house card program with limited dedicated resources. Partnering with an agent credit card provider who can help hone digital strategy will position credit unions to capture potential cardmembers at the right time in the decision cycle.


The players within this space must operate within an evolving landscape that represents one of the most difficult decisions for a credit union to reconsider their credit card operating model. Whether outsourcing to rely on the expertise and investment of a third party or insourcing while investing to hopefully build something better for members, it is critical to be aware of the long-term impact and cost associated with each operating model.

To learn more about the best way to navigate the new world of payments, click here to download a complimentary whitepaper.

Partnering with Elan Financial Services

Partners of Elan Financial Services benefit from a holistic credit card program that focuses on the individual needs of the credit union, with serving members effectively as the ultimate goal. Partner credit unions have access to state-of-the-art technology that gives members desired digital capabilities without upfront investment, and cardmembers enjoy the benefits of a product suite with attractive rewards. In addition, Elan’s comprehensive fraud prevention program keeps fraud losses low per event compared to other industry players. Elan also takes on the compliance and regulatory burdens associated with running a credit card program, so credit unions can focus on their members. For more information, visit www.cupartnership.com.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
November 18, 2019

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