Why and How to Build an Effective Card Loyalty Program

Participation in credit union loyalty programs is rapidly rising. In this post-Durbin world, with capped interchange fees and a web of new regulations, CUs continue to invest in loyalty programs to help retain members, reward loyal card users and generate sustained card revenue growth.

Recent research by Accenture indicated that one-third of all North American cardholders participated in a loyalty program in 2011. Loyalty rewards programs help credit unions attract and keep high-value members.

Reward program participants generate more revenue for the credit union. For instance, Fiserv data shows that credit unions deploying its loyalty rewards program have experienced a 67% jump in participating cardholders since the beginning of 2011. In 2011, these cardholders contributed 62% more revenue to their FI of record when compared to the previous year, an average of $52 annually.

Highly customizable rewards programs have proven to motivate cardholders to activate their cards and use them frequently. In response to the lure of accumulating points, loyalty-driven cardholders use their cards almost twice as often as non-participating cardholders. Recent Fiserv research shows that card portfolios with rewards benefits sport 15% higher activation rates and spending increases of as much as 40%. Loyalty programs are proven to keep members, since program enrollees leave their CU at less than one-third the rate of non-participating cardholders. Loyalty programs benefit members and credit unions and, therefore, are here to stay.


Developing a Loyalty Program

To provide members with a range of ways to earn and redeem points, a successful loyalty program will contain varied program offerings that include merchant- and issuer-funded rewards structures. In merchant-funded programs, cardholders earn points by shopping at select merchants, which in turn, remit funds to the institution to pay for the cardholder's points. These programs offset redemption cost-the bulk of a rewards program's expense-through thousands of partnerships with local and national retailers.

In issuer-funded rewards programs, the credit union sets thresholds to define how points are earned. This allows credit unions to set individualized rules for earning and redeeming, including earn rates, thresholds, caps and point expiration. A third option, blended programs, combine merchant- and issuer-funded options, and typically provide the highest increases in retention, usage, activation rates and interchange.

A financially viable points structure and customizable mix of product offerings can drive member retention and place paramount importance on member satisfaction. Members want options, and credit unions can oblige by considering and understanding member behaviors.

Members today bank and shop using a variety of channels. Loyalty programs must work across popular channels: online, mobile, tablet, point of purchase and in-person. Using their devices to look up points and redemption offers will keep loyalty programs at the member's fingertips.


What To Monitor

To understand what members want to buy, credit unions must actively monitor where cardholders are spending money. Knowing how much money members are spending, and with what retailers it is being spent, will help institutions choose the best retail partners to add value to their loyalty rewards programs. This is especially important since a blended issuer- and merchant-funded program yields the greatest spend rate.

As a double benefit, credit unions can pursue partnerships with local and regional businesses. Enlisting local businesses in the program adds a competitive advantage that attracts additional program registrants. These partnerships also provide a boost to commercial and small business banking relationships, and further serve to leverage operations throughout the credit unions' banking portfolio.

Loyalty programs provide a way to increase revenue per member. By effectively deploying a flexible and incentive-laden rewards program, credit unions will drive retention, increase loyalty and enhance the member experience-an important boon for credit unions that are working harder than ever to retain and grow market share.

John Potok is Product and Business Manager, Loyalty Solutions, Fiserv. He can be reached at john.potok@fiserv.com.