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Credit unions navigating shifting landscape for rewards programs

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Credit unions are navigating tricky waters as they attempt to find ways to reward consumers for using the CU’s cards in a changing rewards and loyalty space.

That’s the position Navy Federal Credit Union – at nearly $92 billion in assets, the world’s largest CU – finds itself in with the re-launch of its own rewards program. The CU’s “Visa Signature Flagship Rewards” program uses a points-based system that rewards extra for travel-related spending. According to Annie Sebastian, Navy Fed’s SVP of credit card products and business optimization, members had expressed “a need for a credit card fit for all types of travelers, which in turn led us to re-vamp our existing products to better serve our 100,000 current Flagship cardholders.”

But while Navy is taking a traditional route, a growing number of institutions are changing how they approach rewards.

According to Jennifer Addabbo, founder/partner at the consultancy CU Engage, for too long credit unions have offered a rewards programs with their credit card offerings “but haven’t really leveraged the true value of the relationship with their members in order to drive additional products and services, and deepen those relationships.”

As such, she noted, some CUs are now shifting their strategies toward rewarding loyalty rather than just the amount of money a consumer spends.

“By providing a holistic-level loyalty program, credit unions can compete with card issuers who only have a single credit card relationship with the consumer,” she explained. “They should be thinking about things like buying down loan rates or buying up CD rates, having a shorter call queue for members who have deeper relationships with them with multiple products [and] taking into account the ability to spread the expense of a loyalty solution across the entire enterprise, instead of just using it to drive up transactional volume and taking the expense against the card program.”

But plenty of institutions are still using the traditional model, and Priyank Shah, AVP at EXL Service, a New York-based operations management and analytics company, said the rewards space is likely to get even more aggressive moving forward.

“Different credit unions have different strategic objectives,” Shah said. “The smaller credit unions would want to increase their market share and thus acquire as many members as possible, whereas, the larger credit unions would like to retain the members and remain top-of-the-wallet. Rewards programs benefit both smaller as well as larger credit unions differently.”

Keep it simple

Regardless of how the programs are structured, said David Dean, SVP of marketing solutions and business development at CU Solutions Group, a Livonia, Mich.-based credit union service organization, CUs making those offerings need to be offering exclusive deals that members can’t get elsewhere.

“The deals need to be simple to understand, administer and redeem,” he advised. “The less work or thought a member has to put into the process the better. ‘Make it easy’ has new meaning, and this often involves harnessing new technology – particularly mobile.”

For example, said Dean, CU Solutions Group’s “Love My Credit Union Rewards” program serves more than 2,200 credit unions and 61 million members, offering discounts with retailers like Sprint, ADT home security, TurboTax and more – all of it based on credit union member loyalty.

“Credit unions in general are getting smarter about how to facilitate rewards,” he said, adding the effective programs must be simple and clear, with easy-to-redeem rewards.

Table stakes

Plenty of institutions still don’t offer rewards, but one analyst says that’s a big mistake.

“For credit card issuers, having a rewards program is really table stakes – that is, a minimum expectation for consumers and credit unions,” said Sara Drake, director of product development at CO-OP Financial Services. “Surveys consistently confirm members expect there to be a rewards program, they actively compare reward program benefits and are willing to change for better rewards.”

All credit unions want member loyalty, but rewards programs can be doubly important for smaller credit unions, said Brian Riley, director of credit advisory services at Mercator Advisory Group, since they can help stimulate transactions and interchange income. While many big banks still offer rewards, he said, some issuers are likely to modify those programs moving forward due to reduced profitability. “What is happening now is that issuers are rethinking some benefits, such as price-matching and auto rental insurance,” he added.

CU Solution’s Group’s Dean, however, refuted the notion that rewards programs benefit smaller credit unions more than their larger peers. “Financial services are essentially commoditized today, so key differentiators at every size institution are significant,” he explained.

No matter how they’re structured and whether they’re rewarding loyalty or spending, sources emphasized that rewards programs – if instituted effectively – can help boost membership and deepen existing relationships with the institution.

“They help you stand out,” she said. “But they also keep your members engaged. They give you more touch points with your member and forge a lasting relationship.”

And CU Engage’s Addabbo said rewards programs don’t have to be strictly limited to credit or debit portfolios. While credit is often “the most profitable loan product usually on the books,” she said, CUs should think more broadly about offering rewards that go beyond just transactions.

“At the end of the day it is all about knowing your options and determining the strategy that fits the needs of the individual credit union’s membership needs and wants and balancing that with the investment,” she added.

Credit unions have seen tremendous member growth in the past decade, but Shah said effective rewards programs will be crucial to keeping those members – and keeping them satisfied – in years to come.

Rewards, he said, are “imperative for them to remain competitive in the market.”

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