Only one of the 2,150 credit unions with credit card receivables of $1 million or more sold its portfolio during the second quarter ended June 30, as buyers remained cautious about overall credit-union health, according to AssetExchange, a Portland, Ore.-based credit-union card broker.
Credit union card-portfolio sales generally have been adversely affected by the recession. Just 22 credit card portfolios sold during all of 2009, the same as during the previous year (see story). http://www.paymentssource.com/news/credit-unions-card-portfolio-sales-3000889-1.html
During the second quarter, the single card portfolio sold for $1 million, while three card portfolios sold during the same period last year at a combined value of $4.5 million, William Koo, AssetExchange CEO, tells PaymentsSource.
Indeed, buyers of card portfolios since the beginning of this year have been cautious because of reduced value and increased risk (see story). http://www.paymentssource.com/news/buyer-caution-hamper-credit-union-card-portfolio-sales-3002037-1.html
Now buyers are not just concerned with the “health of the credit card portfolio, but of the overall credit union as well,” Koo says. “If buyers do not think a credit union will survive, they won’t be interested in purchasing the portfolio.”
Normally banks and other buyers are interested in credit unions because they “have a lot of loyalty,” Koo says.
But if a bank buys a credit union card portfolio and the credit union disappears or is bought by another credit union, then “the portfolio becomes generic,” Koo notes. When that happens, “the bank may lose customers, as there is usually no loyalty towards the issuing bank. Consumers may stop using the card or go to a different credit union,” he says.
During the second quarter, outstanding balances in credit union card portfolios increased at an annual rate of 7.4%, to $34 billion from $32 billion during the same period last year, which continues the trend of mid-single-digit growth. Credit union total assets, which include the sum of all outstanding loan balances, grew at an annual rate of 6.8% between June 2009 and June 2010, according to AssetExchange.
Outstanding balances continue to increase because some consumers still need credit. However, overall lending has become “more strict” in the United States because of the Credit CARD Act and other legislation, Koo says.
The growth of outstanding balances, however, is slowing as “many consumers are trying to lower their overall debt,” he adds.
The number of credit union card accounts during the second quarter grew at a 3.1% annual rate, to 12.6 million from 12.3 million a year earlier, while cards as a percentage of total assets increased to 4.6%, up from 4.5%.
Additionally, the percentage of consumers that carry a credit union credit card remained flat at 18%. primarily because most credit unions “do not market their credit card programs, as the programs are such a small percentage of their asset base,” Koo says.
For the percentage to increase, several credit unions would have to begin marketing their cards because there are so many credit unions in the U.S., he adds.
“When credit unions promote credit card programs to their members via mail, e-mail and branch promotions and emphasize the advantages and benefits of the cards, more members will apply for the cards,” Koo explains. The more members with cards, the higher the penetration, he notes.
And while buyers remain cautious about card portfolios, many credit unions still are interested in selling because they are seeking additional capital, Koo says. However, once the economy recovers, portfolio sales will rise, but with much lower premiums unless the credit union shows potential for growth, Koo surmises.