Reward Members, Build Loyalty

Exclusive results from CUNA’s 2015 Credit Card Survey.

June 8, 2015

How do you breathe new life into a stagnant credit card rewards program? Elevations Credit Union asked its cardholders.

“Our members are not shy,” says Gary Kindle, senior vice president of operations for the $1.5 billion asset credit union in Boulder, Colo. “They tell us what they think, what they want, and what they don’t like. I think we’re getting better at listening to them.”

Elevations members overwhelmingly endorsed a more robust, creative, and versatile rewards program, which—for the first time—features a cash-back option.

Reward Members, Build LoyaltyA rewards program is an increasingly popular tool used by more than half of all credit unions with credit card programs, and 85% of those credit unions with at least $500 million in assets.

That’s one finding from CUNA’s 2015 Credit Card Survey, sponsored by Credit Union Magazine and conducted by CUNA’s market research department.

The survey assesses credit unions’ overall card programs, and examines credit unions’ efforts to meet the scheduled Oct. 1 liability shift date for EMV (Europay, MasterCard, and Visa) cards (“CUs slowly migrating to EMV standard”).

These findings can generate discussions about promoting innovation in your card offerings, regardless of your organization’s size and resources.

“Credit unions have found that their credit card programs can strengthen relationships with members in an ever-changing payments world, prompt bank customers to switch over their credit card accounts, introduce underbanked populations to financial services, and meet increased member demand for security,” says Jon Haller, CUNA’s director of corporate and market research.

Card rates and fees

Consumers’ use of plastic continues to rise, a sign of the growing economy and the increase in merchants and automated terminals that accept credit cards.

Overall, 64% of credit unions with assets of $2 million or more have credit card programs, reports CUNA—a figure that has risen steadily during the past 20 years, from 41.2% in 1995. Also, more than 90% of credit unions with assets of at least $50 million have credit card programs.

Outstanding credit card debt for all credit unions stood at $46.5 million as of year-end 2014, a 7.9% increase over the previous year, according to CUNA’s economics and statistics department. That’s the largest jump since 2007, before consumers began to feel the full weight of the recession.

The 60-day delinquency rate of 0.94% is the second- lowest since CUNA began tracking the statistic in 1998, and far below the highest mark of 2.06% in 2009.

“Consumer balance sheets are in a better spot today than they’ve been in a long time,” says Mike Schenk, CUNA’s vice president of economics and statistics. “Because there’s a lot of pent-up demand in the marketplace, we expect loan growth to continue across all seven of the major portfolios we track, including credit cards.”

CUNA’s card survey shows credit cards represent an average of 5.4% of total credit union loan balances among responding credit unions with card programs. That figure remains fairly consistent across all asset sizes. The survey also explored:

Reward Members, Build LoyaltyInterest rates. Credit unions charge an average annual percentage rate (APR) of 10.2% on the credit cards used by the majority of their members.

That compares with the national credit card average rates cited by the Federal Reserve (13.68%) and (13.02%) for fixed-rate cards, and 15.82% for variable-rate cards.

“If members were to pay off the average estimated U.S. household credit balance of $7,200 in three years with a credit union card, you would save $436 in interest charges,” says Perc Pineda, CUNA senior economist. “That’s a differentiator you can market to consumers— and especially young adults, the most likely age demographic to carry over monthly balances.”

Also, CUNA fee research shows only about 5% of credit unions charge their members an annual fee. Virtually all credit union credit card offerings have late-payment fees.

The median late-payment fee is $20 in credit unions that offer classic programs, and $25 in those that offer gold and platinum or titanium programs. For all three types of programs, the most common fee is $25.

Balance transfers. The average balance transfer rate on credit unions’ cards is 4.1%, although 30% of credit unions don’t charge anything. Additionally, 85% of credit unions don’t charge the cardholder any fees for balance transfers.

Among the 15% of credit unions that charge balance transfer fees, the average is 2%.

Cash-back benefits. About 19% of all credit unions offer this perk as part of their rewards program. That figure rises to 60% among credit unions with at least $500 million in assets.

The overall average cash-back percentage on purchases is 1.3%.

Credit-building programs. About one-third of responding credit unions overall—and 48% of large credit unions—offer this program. The average credit limit on these cards is $1,146, with nearly equal percentages of programs carrying a $500 maximum or a maximum up to $2,000.

Offering credit cards even before members have completed a credit-building program can prevent competitors from reaching those members first, advises Traci Stiles, director of business development at $49 million asset Des Moines Metro Credit Union.

Fraud losses. Credit unions estimated their fraud losses at nearly $20,000, on average, in 2014. Card experts agree it’s not yet clear how much EMV will reduce fraud at the point of sale in the U.S.

But it’s likely at least some fraud will shift to card-not-present transactions, based on EMV conversions elsewhere.

NEXT | Customized Rewards Programs

Customized rewards programs

Experts project more rigorous competition in rewards offerings this year, so credit unions would be well-served to evaluate their programs and make changes that increase brand identity in physical and e-commerce transactions.

Reward Members, Build Loyalty“Rewards programs are table stakes in the credit card business today,” says Barney Moore, CSCU’s portfolio consulting services manager.

Although an easy change would be raising the payback ratio—which averages 0.82 points for each dollar spent on a credit card, according to CUNA’s card survey—a smarter strategy might be to make rewards programs more relevant by offering members greater choice.

That could involve partnering with merchants in your area to offer rewards for card use, says Samantha Paxson, CO-OP Financial Services chief marketing officer.

“Say that your member is really a running enthusiast: She can earn points at the local running store that would go to her credit union card,” Paxson says. “That strategy aligns with credit union values about being local, community-driven, and focused on making connections with the members.”

Elevations surveyed its members through focus groups, Net Promoter® Score feedback, social media polling, and face-to-face conversations.

One takeaway, according to Kindle: Members overwhelmingly desired a cash-back benefit as part of the rewards program. The credit union management team listened and responded with a rewards program tailored to the area’s pride in its natural resources, natural beauty, and philanthropic spirit.

Elevations commissioned a graphic designer to create a handful of concepts apiece for its branded University of Colorado “Buff” credit card—a tribute to the school’s buffalo mascot—and “Colorado Metals” reward card, then allowed members to determine the winner in each category.

“It really is their card,” Kindle says.

Elevations offered members the option of pocketing their cash-back rewards or donating that sum to the credit union’s foundation. Recent foundation contributions included $300,000 in 2012 to victims of severe wildfires in Fort Collins, Colo., and $400,000 to relief efforts in 2013, after floods devastated much of the state, and particularly Boulder County.

Marketing innovator Catherine Palmieri says in an article for strategy+business that rewards programs should be subject to a litmus test: Do they actually drive the intended repeat purchase behavior and brand loyalty?

She suggests eliminating rewards for every purchase—instead providing perks such as occasionally issuing an extra $20 bill during an ATM transaction—and simplifying the redemption process so members can focus on attaining rewards that appeal to them.

Mobile wallets catch on

About 15% of credit unions with credit card programs currently offer a mobile wallet to their members, according to the CUNA survey. Expect those numbers to increase. For example, already more than 800 credit unions have either rolled out Apple Pay or are in the implementation queue.

About 56% of larger credit unions now offer mobile wallets, with almost all of them focusing on two options: Apple Pay (54%) and Google Wallet (20%).

Credit unions that adopted mobile wallets cite as their main reasons staying “top of wallet” for members’ point-of-sale transactions (79%) and meeting member demand for this payment channel (63%). Only about one-third view mobile wallets as a vehicle to enhance payments security or become an industry leader.

Among credit unions that have yet to act, 58% are still assessing their options. Some of the reasons for the delay include a lack of demand from membership (40%), a lack of time or resources to implement a mobile wallet (32%), or insufficient merchant outlets where members could use mobile wallets (29%).

But consider this strategy for your credit card programs: Just as many members use a wide range of credit cards, they might choose to use multiple digital wallets to access certain rewards or guarantee access at all merchants, CSCU President/CEO Bob Hackney observes.

“We’re trying to help our member credit unions grow their electronic payment transactions and related revenue by getting their cards into as many wallets as possible,” Hackney says.