ICUL's presentation by Jamie Conrad during the Volunteer Track of the 9th Annual Police Officers' Credit Union Conference.

1. Helping Credit Unions Compete
for credit debit and pre-paid services

2. 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

3. 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

4. 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

5. 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

6. EMV Cards (chip cards)

7. 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.

8. 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

9. EMV Adoption Rates
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%
Figures reported in Q4 2011 and represent latest statistics from American Express,
JCB, Mastercard and Visa, as reported by their member FI’s gloabally

10. Durbin Amendment

11. 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

12. “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

13. 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

14. 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

15. What has happened to Signature
Income

16. 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

17. 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

18. Federal Reserve Interchange Report

19. 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%

20. Signature Interchange – Fed Report
2009 averages
October 2011 - December 2011 January 2011- September 2011
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%

21. Debit Card Growth Strategies

22. Visa Peer Group Scorecard
4th quarter 2011
Metric Visa System Issuers Issuers Issuers Issuers
1 - 20 21 - 50 51 - 100 101 - 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

23. 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

24. 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

25. Activation Strategies
NEW AND EXISTING
EMPLOYEES CARDHOLDERS INACTIVES
Reward for Use Merchant Offer Develop ongoing
activation, Program incentive offers activation program
not only for account based on activation
Contact monthly or
opening Contact new cardholders
quarterly based
early (within 15–45 days
Focus new customer of account opening) on volume
conversations on the Utilize standard and/or Use direct mail,
benefits of activation/ low-cost channels initially telemarketing,
usage to allow for natural branch
Follow-up new activation follow-up calls,
accounts with an Additional follow-up after emails, statement
activation call 45–60 days of inactivity channel
7–10 days after issue

26. Activation-Specific Materials
Card Carriers
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
Some credit unions
have blank card carriers. Introductory/
Reissue
Use them as a marketing
message.
Upgrade

27. Activation-Specific Materials
Direct Mail
TIP:
Direct mail for activation is
recommended during the
initial 45–60 day window after
card issuance
Activation Activation Letter with
General Education Follow-up Letter Merchant Discounts
• Inserts (two and four-panel)
• Letters and packages
• Track usage 30 days after
Card is sent to your member
Insert with and Without
Merchant Discounts

28. 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?

29. 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

30. 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

31. Credit Cards

32. 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.

33. Credit Card Penetration
Year All in Under $20M- $50M- $100M- $250M- $500M- Over
US $20M $50M $100M $250M $500M $1B $1B
3Q2011 14.74% 11.77% 10.15% 11.29% 11.77% 13.66% 14.4% 19.09%
3Q2010 14.32% 12.17% 10.37% 11.28% 11.6% 13.16% 14.35% 18.71%
 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

34. 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

35. 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

36. •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

37. 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

38. REVENUE PER BILLED ACCOUNT
Increased Penetration,
Activation, Usage and
Balances Drives
REVENUE Growth
Source: CSCU averages year end 2011

39. CREDIT CARD DELINQUENCY
AND CHAREG-OFFS
Reportable
Annualized Charge-
YEAR Delinquency
Offs
•3Q2011 •1.18% •2.5%
•3Q2010 •1.64% •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

40. Questions
JAMIE.CONRAD@ILCUSYS.ORG
630-983-3485