LOS ANGELES-Los Angeles Police Federal Credit Union says its hybrid carrot and stick "Member Benefits" program has added $155,023 to its bottom line since it was introduced six months ago.

Manny Padilla Jr., VP of marketing for the $759 million-asset CU, told Credit Union Journal the program combines both relationship pricing and product bundling to reward members for their use of credit union products and services, while adding fees for low-balance and low-activity members.

LAPFCU introduced Member Benefits on Oct. 1, 2012. To qualify, members must have one of three qualifying products: a first mortgage; a checking account with e-statements and a monthly direct deposit of $250 or more; or a credit card with Visa e-statements, general account e-statements and at least two transactions per month.

The carrot is in the form of program rewards: no monthly checking account fees; a $200 rebate on new first mortgages; up to $10 in monthly fee reimbursements for qualifying services; an 0.20% dividend rate bonus on IRA/certificates; up to 0.50% rate reductions on select loans; and a free box of checks annually

The stick is a $5 monthly maintenance fee imposed on single-service share accounts with balances less than $250, and checking fees on accounts that do not have basic related services, such as direct deposit and e-statements.


Not Seeking To Penalize

"While we were doing research on the program we looked at a lot of different financial institutions," Padilla recalled. "A lot of programs were based on either minimum balances or product bundling, which is how we ended up with a hybrid. Our CEO [G. Michael Padgett] did not want to penalize members if they were involved in the organization. We did not want to make it a $1,000 minimum in savings and force their hand if they had other services."

The benefits program followed a database analysis combined with examination of products and services costs that determined 37% of its members were supporting the remaining 63%. That same analysis discovered 17% of LA Police's checking accounts were inactive.

The program was in development for more than a year and some 20 different models were considered and tested.

"We found that many of these programs only rewarded those with high balances, and that would not be equitable for our membership," Padgett said in a statement. "With some product bundling models, the requirements again were not realistic, so we developed our model from scratch based upon the best of both worlds."


Easiest To Hardest Incentives

According to Padilla, the easiest behavior to incent was e-statements.

"These days people are more comfortable receiving e-statements," he said. "Once you explain that they can receive up to 18 months of data and save it on their computer if they want a copy, that adds to the ease of accepting them as a fact of life."

Direct deposit has also been an easy sell, and it adds "stickiness."

A first mortgage is a "big commitment," Padilla acknowledged, adding most people are not going to move their mortgage over just to get a $200 rebate. However, he said including mortgages in the qualifications for the member benefits program has led to productive conversations and a reminder LAPFCU offers mortgages.

Padilla sad the CU's research found checking remains the "key to the kingdom," followed by credit cards.

As for the "stick" portion of the program, Padilla said the $5 fee on low-dollar account "is working."

"By adding that maintenance fee we were challenging those members that they either need to increase their participation or pay their way," he said. "It cost us $800,000 per year to maintain those accounts, and those members are not really engaged in the credit union, so that is throwing money away. We could have gone a lot higher on the threshhold, but we did not want to alienate people who might be living paycheck to paycheck."

Padilla said members have accepted the reasons for the program and that marketing, targeted at members who have yet to take advantage, emphasizes "how Member Benefits will enhance their lifestyle."


Six Months Of Data

After six months with the program:

* Fee income has increased from $35,000 to $207,000 on related products/services.

* E-statement use is up 32% direct deposit 10%, and Visa e-statements 23%.

* There has been a 25% increase in members who qualify for the program.

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