Rewards Keep CU Cards ‘Top of Wallet’

As demographics change, consumers’ card reward preferences also shift.

August 6, 2014

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Buzz Points Inc., a CUNA Strategic Services alliance provider

CO-OP Financial Services




Rewards programs aren't just important aspects of credit union card programs—they’re the “No. 1 driver of which card tops a wallet,” says Annie Cox, director of loyalty solutions at PSCU. “They are essential marketing tools for differentiating credit unions from their competitors.”

Consumers seem to agree. “The average American household is enrolled in 21 different loyalty programs but is actively engaged in only six,” says Andrew Gates, director of strategic partnerships at RewardsNOW. “About 60% of credit cards are attached to a rewards program, but that accounts for 80% of what people spend.”

Gates says credit unions should give members a wide range of options in their rewards programs—typically travel, merchandise, gift cards, or digital content.

Beyond variety, says Barney Moore, manager of portfolio consulting services at CSCU, consumers look for four main things in a rewards program:

  1. Value. Is there a genuine return?
  2. Relevance. Is it relevant to their lifestyle and shopping habits?
  3. Personal. With the rise of social media, is it tailored to their needs?
  4. Ease and convenience. Is it easy to redeem points?

“Consumers want to see value, and they want aspirational aspects to a rewards program,” says Gates. “They want to see their effort and loyalty rewarded, so the reward has to make them feel they can earn valuable rewards in a short time.

“If it takes a year to earn $20 worth of rewards on one card,” he continues, “it cannot compete with a card that takes only three months. The aspirational aspect is that the reward is something perceived as nice and free.”

Emerging trends

As demographics change and new concepts emerge, consumers’ card rewards program preferences also shift. “For years, cash-back rewards always ranked high in consumer surveys,” says Michelle Thornton, manager, core products, at CO-OP Financial Services. “But that’s changing with the younger demographic, which wants convenience and relevance. For them, it’s all about the experience.”

“The difference between the older and younger generations is that younger members expect more immediate gratification,” adds Gates. “An example might be receiving a gift card on an app rather than an actual physical card.”

Gates notes two other rewards program trends:

1. A blending of formerly distinct approaches to rewarding consumers.

“Traditionally, rewards programs used points for credit or debit card spending,” he says. “Now it’s not just points that consumers expect but value in general. That can take the form of points, but also offers like sales, deals, and discounts. Where consumers would go to a Groupon for those deals and discount offers, they’re now seeing those come from their financial institution as well.”

2. Merchant-funded offers. This is when merchants agree to fund an offer, awarding extra points above and beyond any funding done by the credit union for every transaction at the store using the credit union’s card.


Typically, says Gates, a third party such as RewardsNOW gathers transaction data and then collects the money due from the merchants at the end of the month.

“For years, having a rewards program was the cost of admission for issuing a credit card,” Thornton says. “Now it’s a good value proposition for debit cards as well.”

Another trend that has made inroads is mobile. “Mobile payments haven’t taken off yet, but mobile offers are growing,” says Moore. “There has been more change over the past two or three years when it comes to the mobile channel than most people realize. Those of us in the industry may not see it—it’s like when the uncle and aunt who haven’t seen a nephew in three years remark, ‘Look at how you’ve grown!’ ”

As reward programs evolve, he says, consumers now expect them to keep pace with mobile. “Targeted mobile offers, based on individual purchasing habits and patterns, will increase,” Moore says. “Over the next five years, the number of mobile offers will be exponentially higher than today—which will create the risk of turning off consumers with information overload. That’s why offers will have to become more specific and timely.”

Rather than being tied to a particular catalog of rewards, credit unions are moving to more “multiple fulfillers” to appeal to a broad range of users, Moore adds. This approach allows issuers to allow cardholders to order almost anything they want.

CSCU’s “ScoreCard” program, for instance, now offers a variety of reward options, including:

  • “Dynamic Travel,” a transition away from fixed-price, restricted, conditions-heavy travel offers. It offers variable pricing, where users can combine points and cash to create a customized itinerary that also allows them to track cash and point expenditures on the go; and
  • Fuel redemption, where card use provides an instant discount at the pump. In the future, ScoreCard will allow users to make purchases using points instead of cash.

Cox agrees that mobile and social media are now key to the success of card rewards.

“The trick is sending the right offer to the right member at the right time,” Cox says. “To reach millennials, a rewards program must be simple and immediate—it must offer something tangible right away. The goal is to encourage use of the credit union’s card, not one from another financial institution.”

She says seasonal rewards can help credit unions make offers more welcome. “Recurring holidays and other occasions provide natural opportunities to make offers, and what we call ‘layers’—road maps for future offers based on milestones like birthdays, graduations, and home buying.”

What works—and what doesn’t

Gates sees a “David versus Goliath” proposition that will allow credit unions to compete with banks:

“They can take the hometown stance with local redemption and merchant programs. The big banks just aren’t fast or deft enough to do this. It’s a great niche.”

But some credit unions want cash-back programs exclusively, which Gates doesn’t recommend. “Cash-back programs might inspire transactions, but not loyalty. Also, they’re more expensive because they’re constantly being redeemed.”

In addition, credit unions often return cash-back rewards to the member’s checking account, where they simply become part of the balance used to pay bills, he adds. “Getting an gift card, however, is far more experiential.”

Not all credit unions know how to approach rewards programs, says Moore. “One client wanted to institute a credit card program that had no rewards attached to it. One card was a very low-rate card aimed at affluent members, which the credit union thought would be enough to entice use.

“I pointed out that affluent members, who typically carry low balances, are not as attracted by a low interest rate as you might think,” she continues. “They, too, like the idea of being rewarded for their purchasing choices.”

Most credit unions understand that they can generate more transactions with cards that have rewards programs, Moore adds. “I think all credit cards should have rewards programs attached to them.”

Cox says credit unions’ reluctance to offer card rewards often is based on fears the programs will cost too much or will inundate the credit union with redemption requests.

“But having no program leads to low credit card use, which means loss of income,” she says.

Reliable statistics about redemption patterns can lay inundation fears to rest, according to Cox.

“Our program, Member’s Choice, offers a full catalog of redeemable items or offers, customizable to suit a credit union’s member characteristics,” Cox says. “Credit unions can offer travel, gift cards, merchandise, or cash back in customized programs with different point levels.”

Some credit unions, she adds, offer specialty items, such as alumni gift cards. “But overall we’ve found that such items don’t really drive that much behavior change.

“Marketing is the key to success,” Cox continues. “Members have to know that you have a rewards program. When we ask credit unions that have low redemption rates what they’re doing to promote their programs, the answer is almost always, ‘nothing.’ ”

That, Gates warns, is the biggest mistake of all.

“Don’t view rewards,” he says, “as just another box to check off on a to-do list.”

PATRICK TOTTY is a free-lance writer based in Larkspur, Calif.