A Comment on the Current Credit Card Insurance Debate

Randy Karnes shares his thoughts on the importance of credit cards and the opportunities they represent when managed well.


Written to credit unions using CU*Answers, this editorial reflects Randy’s thoughts on the importance of credit cards, especially as CU*Answers recently included core processing credit card account servicing as part of its standard product. 

Lately I have heard a lot of credit unions debating what changes in credit card insurance (CUNA Mutual) will mean to their programs.  Many people are saying the additional expense or the lack of opportunity to insure their programs means they will have to sell their portfolios and get out of the direct credit card business.
As a data processor, I do not exactly have an unbiased opinion in this area.  I immediately lean to never selling a “well-run portfolio” in this "plastic-centric world."  Two key phrases here.

Testing Your Portfolio

“Well-run portfolio.”  Many credit unions have credit card portfolios, but not all are well run.  The first test for being well run would be what percentage of your staff could be considered credit card product competent.  Many portfolios are more a referenced or endorsed product than a true credit union product (not a core competency). 
The next test would be how well does management know the portfolio's product configuration and membership penetration potential?  Many programs that we have seen have had a widely disbursed, shotgun pattern as to products, features, policies, and procedures.  Often they have card features unknown to the current team and silent in the marketing schemes of the credit union sales people.  Unfortunately, if the pricing for credit card servicing is a la carte for these specialties, the profits of the portfolio are seriously diminished.

The final test would be has the portfolio been priced generically and holistically without any regard for the member demographics or usage patterns that destroy the potential for earning?  A credit card portfolio is designed to be an automated process where the usage patterns and decisions made by the members in how they use the program determine a layered earning potential with multiple shades of gray.  If delinquency fines have no teeth, if there is not automation to rate increases (either variable or penalty/contract-based) or any incentives that drive usage, then the credit union is forced to suffer the consequences of historical decisions, instead of pricing based on actual usage. 

Bottom line, all three of these tests, when failed, equal a credit union suffering through a major product that is lagging behind, out-of-sight, out-of-mind, on autopilot, hampered by too-stiff operational guidelines that quickly make the program out-of-sync with what members want or deserve.

Plastic More Important than Ever

What do I mean by “plastic-centric world”?  Well look around! What is more important to the average wallet today - cash or plastic?  In the last six months, have you not noticed that almost every fast food drive up has shifted to accepting plastic?  Have you not noticed that larger and larger transactions are now completed via electronic channels that require plastic?  Have you not noticed that your competitors still think plastic credit is important?  Plastic is king, and exiting existing plastic programs will only set you back in time waiting to re-enter down the road. 

While I acknowledge that some might believe a strategy to consolidate cost, take the short-term gain, and declare yourself a niche player is one way to go, I wonder if declaring yourself a niche player around eliminating a settlement channel capability is the same thing as basking in the light of being a "boutique service provider, unique and member focused."  Plastics are king: improve your programs, streamline your programs, and increase the spread on your programs...please do not abandon your programs.

Okay, now back to insurance.  I think this whole thing started around the idea of what will we do if CUNA Mutual abandons or significantly raises the cost of insurance.  Well, the biggest real announcement has been that CUNA Mutual is now requiring that every program be protected through acceptable fraud-detection software.  In other words, manage the portfolio for the current-day risks (back to point one, run a good program).

Change Creates Opportunities 

Now you might complain that you will not be able to afford the additional layer of security.  Then innovate.  Trim the unneeded expenses from your current program (back to point one, run a good program).  You might say that you cannot innovate or trust that you can keep up with the innovations in the future.  More importantly, then you are saying that your members are innovating (point two, plastic is king) faster than you are willing to try.  We all know how that will end up.

Without a doubt, credit card products are demanding more from us than they did in the past, but you have opportunities you did not have in the past.  You must act now, before the additional expense sucks the life out of your commitment to be in this game.  Widening security and insurance costs are a fact of life in today's electronic world.  Act today so you can afford the new cost by trimming the old while at the same time increasing your ability to be seen as "member centric" in the lives of your members.

Randy Karnes is the CEO of CU*Answers.  The firm is one of the largest data processing CUSOs and in 2005 released to its clients a fully integrated credit servicing platform standard as part of its core processing solution.  This solution has no upfront fees and no monthly servicing, configurations, or statement fees.  The only fee is a transaction fee when the member uses the card.  The network invests in the credit unions desire to offers cards and only charges a minimal fee when the credit union earns.  This is an investment by the CUSO in expanding opportunity and core competencies amongst its owners and clients.




Sept. 11, 2006


  • A real challenge to the thesis that cu's can't compete in this area, especially smaller ones.
  • Well-written, Mr. Karnes, as always. However, what about an out-sourced card partnership that accomplishes all of your suggestions, eliminating risk, increasing usage, providing long-term fee-based revenue, and a much more robust and competitive suite of card products? If credit unions can't offer a best-of-class card product (i.e. core competency) then wouldn't they be better off with a partnership solution as defined above?
  • I agree with Mr. Karnes. But his observation could be true of almost any CU product or service. If it's not well run, it won't perform to your expectations.
    Jeanine Morse
  • A real challenge to the thesis that cu's can't compete in this area, especially smaller ones.
  • This is the very good credit card side

    Card Service