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Payment Data A Treasure Trove For Building Member Loyalty

While credit unions have been faring better than many large banks and savings institutions in this current economy, it is now more important than ever to maintain member loyalty. Not only do credit unions need to solidify those member relationships, but they need to ensure those relationships are as deep as possible and profitable to the institution. How can this be accomplished?

The answer: Know your members. Where do they shop? What do they buy? How do they pay? What motivates those behaviors?

It seems simple, but for credit unions, which often have disparate, disconnected information systems, the ability to mine transaction data to gain a clear picture of individual members and their payment behavior patterns is elusive. As a result, they may employ a shotgun approach to marketing efforts that isn't based on true member insight, with campaigns that may not provide members with the right incentives to maintain their business. In addition, the campaigns may not be targeting the appropriate members - e.g., those that are at risk or those that may be most profitable to the CU.

The solution: Payment intelligence.

The relatively new concept of leveraging "payment intelligence" - which provides credit unions with an understanding of members' purchasing patterns - is now being put into practice. Through the use of tools that enable analytics and segmentation to determine member buying and payment behaviors, including unique attributes and inflexion points, credit unions are able to develop a deeper understanding of members. Are they funneling dollars from their DDA to fund another financial institution's money market account? Which members use their debit card to pay at retail locations but not at restaurants? Which members are not using their debit cards for purchases at all but are still withdrawing cash at ATMs? With this knowledge, credit unions can determine which members to target with which kinds of campaigns and, in turn, operate more efficiently and effectively while enhancing revenues for the institution.

Segmentation and Analytics

By effectively segmenting and analyzing members to determine their payment behaviors, credit unions are able to understand a wealth of member information and leverage that data to bolster relationships and the bottom line.

Take debit card use as an example. Debit cards are the second largest non-interest income generator for financial institutions, representing $9 billion in non-interest income to banks, credit unions and other card issuers. And in this economy, more and more consumers are relying on their debit cards to make purchases. A recent Wall Street Journal article highlighted that the total dollar volume of purchases made using Visa's branded debit cards surpassed its credit-card purchases for the first time during the last quarter of 2008. The article noted, "The urge to not splurge by thrift-conscious consumers is giving the debit-card revolution a new push."

This puts an even greater emphasis on credit unions' need to understand how members are-or are not-using their debit cards. According to a recent report released by Mercator Advisory Group, the ability to integrate meaningful analytics in an accessible manner is becoming increasingly important as issuers look for ways to build deeper accountholder relationships that have a more sustainable rate of return. By analyzing and segmenting cardholders by specific criteria, credit unions can offer targeted promotions of interest to members that encourage them to make their institution's debit card the card of choice-and help to maintain those relationships and increase interchange revenues for the institution as a result. So how can credit unions gain this level of insight into cardholder activity to influence the desired behavior?

With a payment intelligence tool, credit unions can segment and analyze members and their card use in a variety of ways-by activity (e.g., PIN vs. signature vs. ATM use, Wal-Mart vs. Target shoppers, electronic bill pay or ACH debit vs. recurring debit card payments, etc.), by demographics (e.g., age, geography, gender, etc.) or by profitability (e.g., top revenue-generating members, underperforming or "at-risk" segments, etc.).

Creating Targeted Strategies

By understanding the above, a credit union can then create targeted strategies for these different kinds of member groups within a portfolio, and offer tailored incentives that provide members value as well as influence decisions that are most advantageous to the credit union. Those initiatives may include promotions with specific retailers, offerings by merchant categories, holiday promotions, activation-specific incentives, etc. Campaign results can be measured by tracking payment behaviors over time, to determine the success of these initiatives.

For example, a financial institution in Starkville, Miss. offered a "spend and get" campaign with a retail business partner. It first analyzed and segmented its member base to determine the appropriate target list of members-those who used their debit card but were not using it frequently at this retail partner's store and also lived within a specific geographic area. With this group identified, the institution then initiated a targeted promotion-use your debit card for transactions at this retail location over a six-week period, and receive a $7.50 retailer gift card. This campaign not only increased member spend over 118% at this retail partner, but it also increased debit card use overall for this group by more than 40% during the promotion period, regardless of location or merchant type, and over 90% sustained usage of the debit card six months post-campaign. In addition, the promotion drove an increased number of new checking accounts with linked debit cards as a result of cross-sell efforts with the retail partner.

By understanding members' debit card use patterns, credit unions gain deeper insight to determine which member segments to target with which kinds of promotions and which merchants to partner with for rewards. This enables the institutions to deliver incentives that provide members with something of interest to them, while encouraging them to make decisions that benefit the organizations as well-helping to develop "stickier" relationships and increase revenues.

The biggest value credit unions will ever create is the value that comes from members-the ones they have now and the ones they will have in the future. To remain competitive, credit unions need to employ analytics and segmentation strategies to develop a deeper understanding of member payment behaviors so they can then create, implement and manage personalized and cost-effective marketing strategies and loyalty programs that address both members' and the credit union's needs. By doing this, these businesses will be able to keep account holders longer, grow them into bigger account relationships and make those relationships more profitable.

Tyson Nargassans is president/CEO of Saylent Technologies, Inc. For info: www.saylent.com.

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