PETERBORO, N.H.-If the credit union is considering adding merchant-funded rewards, one analyst recommends paying close attention to all the different platforms available.

"I see a break in two directions," said Tim Kolk, owner of TRK Advisors. "Some processors are structuring programs to generate additional revenue for themselves, as well. Some are structuring programs that add no costs to the issuer. In the second case the merchant is paying all of the extra costs and it's truly extra revenue for the issuer."

What concerns Kolk is that he is seeing "confusion" in the marketplace as to which processors offer which options. "Because it's tricky. If you are paying for the bonus points, then you are making a bet that the extra usage will offset that cost. That's where you get to the really hard to part, evaluating the processor and doing the math on each one can be overwhelming."

Platforms differ, noted analysts, saying that those that charge generally get about a penny per point redeemed. Madeline Aufseeser, senior analyst at the Aite Group, estimated that overall, the merchant and vendor bears 95% of the expenses. "And, there is an income stream, in addition to extra transactions, that financial institutions can derive from some of the platforms."


Additional Income Stream

Steve Ryerson, president of UNFCU Financial Advisors, a wholly owned CUSO of the $3.7-billion United Nations FCU, just introduced a merchandise shopping platform that provides cash-back and coupon offers. In a previous report (Credit Union Journal, Aug. 6), Ryerson said its offering gives CUs additional income. The credit union receives a small portion of the cash back being returned by each merchant to shoppers.

While the revenue per-purchase may not be large-pennies on the dollar-where Ryerson thinks CUs will benefit the most is from members using the credit union's plastic when they shop on the platform.

"I am fully convinced there will be a propensity for members to use the credit union's cards," said Ryerson, who added that the credit union cannot mandate members use the CU's cards on the shopping network as merchants would not allow that rule.

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