Helping Credit Unions Compete

for credit debit and pre-paid services

Who is the ICUL Service Corp?

• We are owned by the Illinois Credit Union League, a

Credit Union Non Profit Organization

• Our mission is to “Help Credit Unions Compete”

• We are a ONE STOP SHOP for all credit union needs

with multiple processing options and comprehensive

network relationships:

VISA, MasterCard, Discover,

CO-OP, Allpoint, Money Pass, PULSE, STAR

FiServ, First Data, FIS

ICUL Service Corporation Background

• Services Offered:

We provide services to credit unions in all 50 states.

ATM Network (12th largest ATM Network)

Credit cards (1,000+ programs)

Debit cards (3,600+ CU’s)

Prepaid Debit

Gift Cards Family Card

Travel Money Everyday Spend

Payroll

Multiple processing options

• Credit Cards – First Data and Fidelity Pass Thru and Full

Service option

• Debit Cards – First Data, Fiserv, Fidelity Intercept and Fidelity

Pass Thru Platforms

User friendly web based work stations for all of our credit unions.

Collection Services

Implementation Team

• Dedicated group of 12 + staff

• Credit union works one on one with our

implementation department throughout the process

• Implementation coordinators

Program upgrades

Conversions

Program consolidations

Customer Service Support

• Call center is served by “teams” of customer service

representatives so that each team gets familiar with

your credit union.

• Call center performance is monitored and measured

• Credit union survey is conducted to ensure

standards are met

EMV Cards (chip cards)

Visa and Mastercard EMV

rule changes

• Visa April 1, 2013 – Acquirer processors and subprocessors must certify support for and

accept Visa EMV chip contact and contactless transactions

October 1, 2015 – Liability shift for counterfeit POS fraud will be assessed to the party that prevented the chip to chip transactions

• Issuer : If the card was not EMV – chip enabled

• Merchant Acquirer : If the POS terminal is not chip enabled

October, 1, 2017 – Same as above for Automated Fuel Dispenser

• Mastercard

January 2012: Established a “liability hierarchy” to rate card acceptance methods based on the interplay between card and acceptance devices

• Mag-stripe is least secure

• Chip and signature

• Chip and PIN is most secure

By 2013: 50% PCI compliance testing and fee reflief for merchants running 75% of card transactions through an EMV terminal with both contact and contactless capability

By 2015: 100% relief for merchants running 95% of transactions through an EMV terminal.

Liability shift implication

• In U.S. Today In most card present environments, fraud is absorbed by the issuer unless the merchant fails

to meet POS acceptance requirements of fails to defend the “chargeback process”

• Visa 2015 : Liability will fall on the entity that has not upgraded to chip, whether it’s the issuer or the

retailer

• If both have chip, then the issuer will be responsible

• If the issuer has upgraded and the retailer has not, then the retailer will bear the liability cost

• Mastercard 2015 : Liability shifts to merchants who have not upgraded their POS

terminals to process emv card transactions and fraud occurs • Whichever party (issuer or merchant) offers the least secure method would be held

liable for a fraudulent transaction.

• Liability shift does NOT include lost/stolen card fraud, card not present transactions(ecommerce) and contactless cards without a contact chip

EMV Adoption Rates

Figures reported in Q4 2011 and represent latest statistics from American Express,

JCB, Mastercard and Visa, as reported by their member FI’s gloabally

Issuers Terminals

EMV Cards Adoption Rate EMV Terminals Adoption Rate

Canada, Latin America and Carribbean 318,779,062 41.1% 4,443,000 76.7%

Asia Pacific 366,229,237 28.2% 4,551,000 51.4%

Africa and the Middle East 31,573,578 20.6% 462,000 75.9%

Europe Zone 1 759,760,119 84.4% 11,920,000 94.4%

Europe Zone 2 37,104,467 14.5% 610,500 68.1%

United States not reported not reported not reported not reported

Totals 1,513,446,463 44.7% 21,986,500 76.4%

Durbin Amendment

2011 Durbin Key Provisions

• Interchange CAP

Exempt – FI’s under $10 Billion

Non Exempt – FI’s over $10 Billion

• Routing and Exclusivity

2 Unaffiliated Networks required

Eliminates Issuer Priority Routing

• ATM Cards must comply with PIN/POS Rules

11

“Unaffiliated Networks”

National Network Signature PIN POS ATM Brand

VISA VISA Interlink PLUS

Mastercard Mastercard Maestro CIRRUS

Discover Discover PULSE PULSE

Star Star Star

Accel/Exchange Accel Exchange

Others Others Others

12

ATM Network Response

• Most ATM Networks have enticed financial institutions , where if credit unions only participate in one PIN POS network they earn additional income

> PULSE – Pulse Pay Choice (PPC) > Star - STAR Preferred > Accel/Exchange – Member Advantage

• CU does have to sign a new agreement with these networks to participate in

increased interchange income. • Average PIN POS increase income is between 10-15% of current income • A lot of Credit Unions already only participate in one ATM network, however

they haven’t taken advantage of the additional PIN POS interchange

• For Credit Unions on multiple PIN POS networks – Is having multiple networks diluting your interchange income?

13

Leverage Single Branded

• AVG Increase in PIN POS Interchange:

$.03 - $.055

• What does it really mean to our CU’s?

10,000 PIN POS Transactions Month = $6,000 a year in added Revenue

15,000 PIN POS Transactions Month = $9,000 a year in added Revenue

20,000 PIN POS Transactions Month =$12,000 a year in added Revenue

What has happened to Signature

Income

ICUL-Service Corporation Stats

• Prior to Durbin Amendment – 1.40% Average – July thru

September 2011 average

• October – December 2011 Average – 1.31% - Visa made

modifications to some of their rates October 1st, as well as

some of their merchant tiers.

• April 2012 – Visa once again modified interchange rates –

Average is 1.26% for our credit unions in April

• 14 Basis point drop since September on average

$100,000 spent is $140 less in monthly interchange

Credit Union Concerns

• Loss of program revenue

Since October Most credit unions have lost between 10-20

basis points.

Merchant Steering of Transactions – VISA PIN

Authenticated Visa Debit (PAVD)

Market suppression of future interchange? Will PIN POS

and Signature Interchange reach Parity?

• PIN Average : $.31 - $.04 (network switch fee) = $.27

• Add $.03 to $.055 with exclusive deal - $.30-

$.325 • Signature Average: $35 x 1.26% = $.441 - $.06 (Visa base 1

and 2 fees and quarterly assessments) = $.381

17

Federal Reserve Interchange Report

Federal Reserve Avg PIN

Interchange – Oct thru Dec 2011

October - December 2011 January - September 2011

Exempt Non Exempt Exempt Non Exempt

PIN AVERAGES $0.31 0.72% $0.23 0.55% $0.32 0.75% $0.34 0.84%

ACCEL/Exchange $0.31 0.72% $0.21 0.41% $0.30 0.70% $0.29 0.61%

AFFN $0.24 0.75% $0.20 0.31% $0.25 0.66% $0.22 0.57%

Alaska Option $0.15 0.28% $0.15 0.27% $0.15 0.23% $0.15 0.28%

ATH11 $0.30 0.80% $0.17 0.47% $0.29 0.80% $0.29 0.80%

Credit Union 24 $0.21 0.46% $0.18 0.29% $0.21 0.47% $0.25 0.45%

Interlink $0.31 0.78% $0.23 0.57% $0.34 0.84% $0.35 0.87%

Jeanie $0.25 0.50% $0.18 0.38% $0.26 0.60% $0.30 0.72%

Maestro $0.27 0.64% $0.24 0.54% $0.31 0.78% $0.34 0.78%

NetWorks $0.33 0.97% $0.24 0.71% $0.31 0.94% $0.31 0.94%

NYCE $0.34 0.77% $0.23 0.49% $0.34 0.79% $0.37 0.81%

PULSE $0.33 0.81% $0.24 0.56% $0.32 0.79% $0.35 0.81%

SHAZAM $0.29 0.72% $0.19 0.43% $0.26 0.67% $0.24 0.60%

STAR $0.32 0.72% $0.24 0.53% $0.33 0.76% $0.32 0.74%

Signature Interchange – Fed Report

October 2011 - December 2011 January 2011- September 2011 2009 averages

exempt non-exempt exempt non-exempt All F.I.'s

Signature $35.58 $0.51 1.43% $38.03 $0.24 0.63% $36.33 $0.54 1.48% $38.07 $0.59 1.54% $37.15 $0.55 1.49%

Discover $0.42 1.43% $0.17 0.56% $0.43 1.40% $0.25 0.89%

MasterCard $0.54 1.48% $0.24 0.61% $0.55 1.50% $0.59 1.50%

Visa $0.49 1.41% $0.24 0.63% $0.53 1.47% $0.58 1.55%

Debit Card Growth Strategies

Visa Peer Group Scorecard

4th quarter 2011

Metric Visa System Issuers

1 - 20

Issuers

21 - 50

Issuers

51 - 100

Issuers

101 - 250

Power Score:

Transaction 7.94 10.76 8.67 8.57 8.46 Sales volume $278.20 $372.43 $306.47 $300.03 $293.06

PAU:

Penetration 76.6% 79.8% 73.5% 75.2% 72.0% Activation 65.6% 74.5% 76.1% 74.0% 74.8%

Usage 15.8 18.1 15.5 15.4 15.7

Portfolio Growth:

Sales Volume 5.3% 7.9% 8.5% 13.0% 11.3% Transaction Volume 5.0% 7.4% 7.9% 13.0% 10.9% Average Ticket $35.04 $34.61 $35.35 $35.01 $34.66

Accounts and Cards:

VCC Accounts 173,858,739 5,573,098 298,980 143,453 71,308 VCC Accounts Growth 2.2% 3.6% 4.9% 4.6% 8.5% VCC Card Growth (1.1%) 2.2% 3.2% 4.8% 7.0% Sales Volume by MCC:

Retail 28.8% 28.3% 29.4% 30.5% 29.4% Restaurants 10.1% 10.4% 9.8% 9.5% 10.0% Supermarkets 8.4% 7.7% 9.8% 10.2% 9.6% Fuel 11.3% 10.0% 12.4% 13.6% 12.6% Bill Payment 15.4% 16.9% 13.5% 12.7% 13.2% Quick Service Restaurant 6.2% 6.3% 6.2% 5.8% 6.5% Mail/Telephone Order 9.5% 10.1% 8.7% 8.2% 8.5% Internet 17.7% 18.7% 16.3% 15.7% 16.3%

Operation Metrics:

Authorizaion Approval % 93.6% 93.4% 93.6% 94.2% 94.2% Declined % 4.4% 4.5% 4.4% 3.9% 3.8% Overall Chargeback % 0.03% 0.04% 0.02% 0.01% 0.01% Reported Fraud Losses rate (BP) 11.21 12.56 9.72 7.73 8.91

Penetration

Develop a Card Strategy Visa Average is 76.6% of share draft/checking accounts

• All new DDA accounts should receive a Visa check card

Best-in-class issuers are penetrating 90% of new DDAs

Ensure branch platform defaults to Visa check card

Position the card as a primary access device to checking account

• Evaluate non-Visa check card customers

Upgrade ATM and/or DDA-only accounts

Use Performance Measurement Calculators to develop business

case

• Develop activation program for all accounts

Incorporate telemarketing within first 14 days to

encourage early activation

Incent employees based on card activation

Penetration

Educate employees and cardholders

• Provide training to branch employees

Turn employees into Visa check card ambassadors

• Communicate product advantages to cardholders

Ease of use

Worldwide acceptance

Safety and security

• Zero Liability policy

• Provisional credit

Debt management and budgeting tool

Activation Strategies

Reward for

activation,

not only for account

opening

Focus new customer

conversations on the

benefits of activation/

usage

Follow-up new

accounts with an

activation call

7–10 days after issue

EMPLOYEES NEW AND EXISTING

CARDHOLDERS INACTIVES

Use Merchant Offer

Program incentive offers

based on activation

Contact new cardholders

early (within 15–45 days

of account opening)

Utilize standard and/or

low-cost channels initially

to allow for natural

activation

Additional follow-up after

45–60 days of inactivity

Develop ongoing

activation program

Contact monthly or

quarterly based

on volume

Use direct mail,

telemarketing,

branch

follow-up calls,

emails, statement

channel

Activation-Specific Materials Card Carriers

Some credit unions

have blank card carriers. Use them as a marketing message.

Introductory/

Reissue

Upgrade

FACT: Card carriers are often the first touch point with the cardholder after initial account opening

Remind them of key reasons for using their card

Activation-Specific Materials Direct Mail

General Education

• Inserts (two and four-panel)

• Letters and packages

• Track usage 30 days after

Card is sent to your member

Activation Letter with

Merchant Discounts

Insert with and Without

Merchant Discounts

Activation

Follow-up Letter

TIP: Direct mail for activation is recommended during the initial 45–60 day window after card issuance

Usage

• Visa average active cardholder does 15.8 transactions per

month at an average of $35.04.

• Number 1 metric to concentrate on to drive interchange

income

• Core Data Processors

Can you core data processor support providing a member an

additional 50 or 100 basis points on the checking account

balance if a member does over a certain dollar amount of

transactions in a month or a certain number of transactions?

Usage Strategies

Take Multi-Pronged Approach

• Educate cardholders where and how to use

Medium and heavy users – new places to use

Light users – benefits (security, budgeting)

• Incent card usage with value-add programs (e.g., rewards, merchant offers, sweepstakes)

• Ensure optimal daily spending limits

Bill payments, other emerging merchant segments have higher average tickets

Usage Strategies

Take Multi-Pronged Approach

• Encourage cardholders to pay bills with the Visa card Build annuity-like usage and improve retention

Increase average ticket – $79 bill payment average

• Advocate security-based product advantages to replace cash and checks

Credit Cards

Knowing Your Cardholder Habits

Keeping track

of your billed

accounts with

Finance

charges

assists in

tracking

Revolvers vs.

Transactors

As you can

see their

priorities do

differ and

may need to

be marketed

to differently.

Survey performed by J.D Power and Associates.

Credit Card Penetration

Year All in US

Under $20M

$20M- $ 5 0 M

$50M- $100M

$100M- $250M

$250M- $500M

$500M- $1B

Over $1B

3Q2011 14.74% 11.77% 10.15%

3Q2010 14.32% 12.17% 10.37%

11.77% 13.66% 14.4% 19.09%

11.6% 13.16% 14.35% 18.71%

11.29%

11.28%

Penetration continues to be an opportunity for all credit unions, regardless of their Total Asset size.

Average at 14.74% and Top 3rd up at 26.8%

Increase Penetration thru:

• Rewards

• Direct Mail Campaigns

• Marketing Materials/Product Presence (Web, Lobby, etc.) • Balance Transfer Campaigns • Pre-approvals and cross-selling

Source: Callahan and Associates 3Q3011 Credit Union Strategy and Performance

Average Outstandings

Average outstandings

remained stagnant as well

as finance charges

Balance Transfers

TLR Pricing – Special

APR’s based on MCC

Rewards

Source: CSCU averages year end 2011

INCREASED ACTIVE ACCOUNTS

% of Accounts Billed

showing growth. The more Billed Accounts we

have the greater portfolio

profitability.

% of Accounts with

Finance Charges remain

at the same level, 65-

66%. Increasing revolvers increases

Outstanding and improves Loan to Share.

Source: CSCU averages year end 2011

•CREDIT LINES VS. OUTSTANDING

Increased % of Credit

Line Used continues to

restrict cardholders from

increasing average balances.

Annual Credit Line

Management:

• VERIFY ACTIVE ACCOUNTS VS. CREDIT LINE USED

• Look to increase revenues

and reduce risk

Source: CSCU averages year end 2011

USAGE & VOLUME CONTINUE TO GROW

Increased Usage drives

increased Volume per

Account.

Work your inactive accounts. Usage Promotions Rewards

Source: CSCU averages year end 2011

REVENUE PER BILLED ACCOUNT

Source: CSCU averages year end 2011

Increased Penetration,

Activation, Usage and

Balances Drives

REVENUE Growth

CREDIT CARD DELINQUENCY AND CHAREG-OFFS

•3Q2011

•3Q2010

•1.18%

•1.64%

•2.5%

•4.3%

•There is a positive trend in Delinquency and Charge-Offs. Both ratios •continue to improve across all asset sizes.

Source: Callahan and Associates 3Q3011 Credit Union Strategy and Performance

YEAR

Reportable

Delinquency Annualized Charge-

Offs

JAMIE.CONRAD@ILCUSYS.ORG

630-983-3485

Questions