Credit Union Times - Centennial Edition - (Page I26) CeLeBrAtiNg 100 YeArS , SPeCiAL CeNteNNiAL editioN defensive Moves Yielded First Credit Union Credit Cards By DaViD MOrrisOn CU Times Senior Staff Reporter ARLINGTON, Va. — Many in the credit union industry take the fact that credit unions issue credit and debit cards for granted. Most can’t recall a time when credit unions didn’t issue some sort of payment card or, for that matter, offered anything beyond share draft or checking accounts. That was not always the case, as some longtime credit union and card executives can tell you. But first, some general history is in order. The earliest forms of payment cards stretch back to the days following World War I, according to Visa, when some businesses began issuing metal cards to help their customers make purchases without cash. The first gasoline payment card was issued in 1924 and interest in payment cards rose and fell during the Great Depression, late 1930s and World War II. The first multipurpose payment cards appeared on the scene in 1950 with the Diners Club card. American Express followed with its first card in 1958, and the first Carte Blanche card appeared on the scene in the mid1960s. The first bank-issued payment card came in 1951 from the Franklin National Bank, a bank headquartered in Long Island, N.Y., which failed in 1974. Other banks followed Franklin’s move by issuing up to 100 payment cards for use in their local communities, but none matched the staying power of Bank of America’s BankAmericard that the bank first issued in 1958 for use by its customers in California. The card eventually became Visa. The innovation Bank of America brought the nascent card industry was the creation of a company, the BankAmerica Service Corp., which licensed other banks around the country to issue the BankAmericard, planting the seeds for David Serlo the nationwide card brand. Credit unions came onto the card scene in the mid- to late-1970s, with initiatives in three states to help primarily federal credit unions begin to issue credit cards. In 1975, a group of 155 state- and federally chartered credit unions organized themselves, pooled their resources and purchased Town North Bank, a state-chartered bank in the Dallas area, in part to make sure that credit unions in the future would have the ability to issue cards. “Card issuing was not the only concern on the minds of Texas credit unions” that led to the purchase of Town North Bank, explained John Reap, now president/CEO of the credit union-owned bank, “but it was one of three.” Reap explained that Texas credit unions worried that unless they owned a bank they might not be able to have access to the Federal Reserve, might not be able to participate in the growing electronic funds transfer system and would not be able to issue cards. “In that sense the purchase of the bank was certainly defensive in that the credit unions wanted to make sure they could do these things, but we like to think we have moved into a more proactive stance since,” Reap remarked. Town North took on the card-issuing question one year later, in 1976, when it organized a subsidiary, TNB Card Services, and began helping credit unions issue MasterCard (then MasterCharge, which was launched in 1966 by a group of banks organized as the Interbank Card Association). MasterCharge was first in the door (TNB-affiliated credit unions started issuing Visa in 1978) with Town North, in part because Visa card and point-of-sale decals were not rolled out until 1977, according to the card brand. Meanwhile, similar efforts in Wisconsin and Florida aimed to help credit unions issue cards. In Madison, Credit unions in Texas bought Town North Bank, in part, to make sure they could issue credit cards. CUNA’s Services Group took up card issuing, an effort which was eventually spun off and sold to card processor Equifax (now Fidelity National Information Services). In Tampa, five federal credit unions got together to form Payment Services for Credit Unions (now PSCU Financial Services). The five founding federal credit unions were GTE, Pinellas County Schools (now Achieva), Railroad and Industrial, Publix and Suncoast Schools. Unlike the credit unions in Texas, these early card issuers were motivated less by worry that credit unions would not be able to issue credit cards than by concerns that banks would take over the market first. Federal credit unions were the ones in Florida to start issuing cards because, like many other states at the time, Florida initially did not allow its credit unions to issue cards. “They believed that banks would eventually come around to serve the commercial retail market more and that cards and the ability to offer cards was going to be a key part of offering full financial services,” said PSCU CEO David Serlo, who joined PSCU in 1983 as its first paid employee. Perry Dawson, then CEO of Suncoast Schools, said the five credit unions viewed credit cards as more than a gimmick or passing fad and a significant part of what it would eventually mean to be a full-service financial institution. “Of course it was a little controversial, and we knew that not every credit union would do it,” Dawson said, “but we thought issuing cards was something that credit unions needed to be able to do and something we could more efficiently do together rather than each of us be on our own.” The controversy arose from the loans being unsecured–and hence inherently riskier–and from the expense that card processing brought. But, Serlo explained, that was the point of PSCU’s creation, to help credit unions cut that expense by outsourcing parts of their card processing. Of course, merely issuing the cards was only the beginning, executives pointed out. Many credit unions did perceive credit cards as riskier and others questioned whether their members would be able to or even want to use them. In addition, Keith Floen, now with card issuer InfiCorp and formerly with CUNA Services Group, recalled how the combination of a relatively low credit union interest rate cap and a higher overall interest rate environment combined to hamper CU card issuing. “Remember, at that time you had such high interest rates generally that a credit union making credit card loans, whose interest rates were capped, would have lent out money for less return than it would have cost,” he said. But looking back, Dawson expressed some satisfaction with the decision Suncoast Schools and other credit unions made to pursue card issuing. “I think time has proved that we were right to want to issue cards and to offer our members as many financial services as possible,” Dawson said, recalling that Suncoast Schools changed to a federally chartered institution in order to issue cards. “It was a hard choice but in the end I believe we were correct.” —dmorrison@cutimes.com Credit Union Pioneer edward Filene dies in Paris PARIS, Sept. 26, 1937 — Edward Filene, the Boston merchant who was instrumental in advancing the credit union movement in the United States, died in a Paris hospital today at the age of 77. Filene set sail for Europe aboard the S.S. Normandie in July, but he soon became ill. Reports from here said he suffered a pneumonia attack yesterday while on his way to London after a tour of Europe. He was brought to the American Hospital here yesterday. Messages of condolence came to Filene’s Boston home from businessmen and industrialists and from labor and socialist leaders such as John L. Lewis and Norman Thomas. President Franklin D. Roosevelt wrote of Filene: “He was a prophet who perceived the true meaning of these changing times. He did not repudiate the past, after the fashion of some reformers, nor did he repudiate the future after the fashion of those who fear reform. He believed in learning and searching out ways of human progress.” Roy Bergengren, Filene’s colleague at CUNA, said he was “completely surprised and profoundly shocked” by the news of Filene’s death. He added that he intended to organize a series of memorial credit union meetings around the country. He told the nation’s credit union leaders that Filene had left them an “extraordinary legacy” and that they had “the privilege of carrying the credit union work forward and accomplishing with it all of those extraordinary objectives which Mr. Filene so anticipated. He becomes our priceless tradition.” www.cutimes.com Credit Union Times, December 2008 http://www.cutimes.com
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