BofA Dropped by Sallie Mae as Barclays Wins Upromise Card
“We thought Barclays offered us a better overall execution,” Joe DePaulo, SLM’s chief marketing officer, said yesterday in an interview. “This is a step up.”
Bank of America’s rivals are benefiting as the Charlotte, North Carolina-based firm retrenches in businesses including credit-card and mortgage lending. Outstanding card loans dropped 7.9 percent to $112.6 billion last year, the biggest decline among the 10 largest U.S. issuers, according to the Nilson Report, an industry newsletter. U.S. credit-card loans at London-based Barclays jumped 17 percent to $12.2 billion.
SLM, known as Sallie Mae, had opportunities to renew with Bank of America or explore other deals, DePaulo said. The Newark, Delaware-based student lender has teamed with banks since 2001 to help families fund education costs with credit- card rewards. It offers the card through its Upromise Inc. unit, and its Upromise Investments Inc. division is the largest U.S. administrator of 529 college-savings plans.
Tony Allen, a Bank of America spokesman, declined to comment on the decision. The bank’s focus is on customers who use multiple products, and that’s why it sold credit-card portfolios affiliated with Regions Financial Corp. (RF) and Sovereign Bank last year, Allen said.
“These kinds of relationships are predominantly single- service card customers with real limited opportunity for us to deepen relationships,” he said. “That turned out to be the case with Upromise as well.”
The move is Bank of America’s latest to shed part of its credit-card business, most of which was acquired in the 2006 takeover of MBNA Corp. Last year, the lender agreed to sell its Canadian unit and said it was exiting card operations in the U.K., Ireland and Spain. Revenue at Bank of America’s credit- card unit slid 19 percent to $18.1 billion last year amid new U.S. regulations limiting fee income. In April, the business was merged with deposit and small-business units into a new division overseen by co-Chief Operating Officer David Darnell.
Sallie Mae’s partnership with Barclays’s U.S. payments unit will offer customers better products, rewards and service, DePaulo said. Upromise sent letters to cardholders this week alerting them of the change and it announced the new product in a statement today.
“By using the card every day for household purchases, families can accelerate their savings and really see the benefit accumulate,” Surinder Singh, general manager of U.S. cards for Barclaycard US, said in the statement.
Barclaycard US, which said in February that it had acquired the $1.3 billion Upromise portfolio, will issue new cards to the program’s Bank of America customers in September. DePaulo said in the interview yesterday that the decision to end the relationship with Bank of America was made by Sallie Mae.
Citigroup Inc. (C), the third-biggest U.S. bank, posted a $127 million gain in 2008 when it sold the Upromise card portfolio to Bank of America, according to a regulatory filing. The card portfolio had balances of about $1.2 billion at the time.
Kevin Sullivan, a Barclays spokesman, declined to say what the company paid for the portfolio.
Cardholders receive cash back for college when making purchases through the Upromise website, 4 percent at participating restaurants, as much as 3 percent at eligible gas stations, 2 percent at movie theaters and 1 percent on all other purchases, Sullivan said. There’s no annual fee or minimum spending requirements.
Upromise Investments, with assets of $41.3 billion in 31 plans across 16 states as of March 31, generates revenue by providing program management services for 529 accounts, according to Deborah Hohler, a spokeswoman.
Money earned from spending with the card may be invested in a 529 plan, deposited into a Sallie Mae savings account, used to pay down student loans or redeemed for a check, Hohler said.
The 529 plans are set up by states and generally offer tax- free gains on earnings if used to pay for eligible college expenses. Assets in 529 savings plans totaled about $158 billion at the end of the first quarter, according to Boston-based Financial Research Corp.
Charges for in-state students at public four-year colleges, including tuition, fees, room and board averaged $17,131 for the most recent school year, according to the New York-based College Board. At private, nonprofit four-year schools, costs averaged $38,589.
“You’re going to have to find multiple ways to save because that is a big number,” DePaulo said. “This is one component of how you save.”