By Ray Birch
SAN ANTONIO—Credit unions work hard to attract new members and build card portfolios—but often see that effort walk out the door when a credit card application is declined.
A new solution from RAI Partners, co-founded by former Velera payments executive Brian Scott, aims to change that dynamic by giving credit unions a way to keep those members, generate income and avoid losing the entire relationship to a big bank.
Scott, who has spent years advising credit unions on payments strategy, said the idea came from watching institutions “do all the hard work” of marketing cards and then turning applicants away.
“I just saw all these credit unions declining great credit card loans that could still be profitable,” Scott told CUToday.info. “In many cases, if you decline them, they’re probably not coming back. They’ll go to a Capital One or another bank—and that means the credit union risks losing more than just the card. They could lose the member.”
How The Solution Works
RAI Partners offers to take on the declined credit card applications a credit union doesn’t want to keep on its books. The firm underwrites those accounts using its own underwriting standards, but the cards can still carry the credit union’s brand. Members continue to see their relationship as being with their credit union, while RAI assumes the credit and portfolio management risk, Scott explained.
Credit unions also have the option to sell RAI a portion—or even all—of an existing card portfolio. That allows the credit union to shed segments dragging on profitability, while retaining the rest, Scott explained.
“We can buy that portion of the portfolio that the credit union doesn’t want, manage it profitably within our larger pool, and return some of that profitability back to the institution,” Scott explained. “Meanwhile, members still see it as their credit union’s card.”
Why RAI Can Underwrite What Credit Unions Won’t
According to Scott, many credit unions are simply too conservative with their risk appetites—or limited by regulations such as the 18% interest rate cap. With a bank charter behind it, RAI Partners has more flexibility.
“That doesn’t mean we always use higher rates, but it gives us room to make certain member segments profitable,” Scott said. “We also look at charge-offs differently. A 2% delinquency rate may look bad to some credit unions, but when you factor in interchange and interest income, those loans can still generate strong returns.”
Brian Scott
This risk-tolerant approach allows RAI to keep more members in the credit union orbit while absorbing the challenges of fraud and charge-offs that might deter smaller institutions.
Keeping The Member Relationship
One of RAI’s selling points is that the member always remains the credit union’s member. Even when RAI owns the card, data and performance information are shared with the credit union. And if the institution later wants to bring the account—or even the entire portfolio—back in-house, it has the option to do so, Scott said.
That flexibility, Scott contended, sets RAI apart from competitors that buy and absorb credit union portfolios under their own name.
An Overlooked Opportunity
Scott believes the model represents a significant growth opportunity for credit unions, especially those seeking to expand their reach through sponsorships and community partnerships.
“Think about credit unions with collegiate athletics sponsorships. They can market cards broadly to those fan bases, but they may not want to underwrite every applicant. We’ll help them do that, and all of those become potential members,” Scott said.
Founded about two-and-a-half years ago, RAI Partners is still in its early stages but is gaining momentum as more credit unions look for ways to balance risk and growth, Scott explained.
“Credit cards are one of the most profitable loan products when managed correctly,” Scott said. “We’re helping credit unions make sure they don’t lose that opportunity—or the member—just because they can’t take on every application.”