BOSTON-More credit unions need to use data analytics-and get better at using the tools-to drive payments strategies, according to several experts who say the big banks have a huge leg up in this area with credit cards.
To compete effectively, analysts say, CUs must dive deeply into transaction data and member spending patterns to fine tune credit card offers and pricing, even change member behavior.
Those falling most behind the big banks, which have been using analytics with credit cards for a long time and have been steadily turning up the heat in the credit card market the last two years, are the medium- to small-asset size credit unions, sources agreed. Ron Shevlin, senior analyst at the Aite Group, who is working on a report on the usage of analytics among FIs, told Credit Union Journal that according to his latest findings, "Credit unions are really far behind when compared to big banks. They are not as sophisticated in the use of analytics."
Jeff Russell, senior advisor at The Members Group in Des Moines, Iowa, pointed out that credit unions have the lowest credit card rates in the financial services industry. "Yet we have 4% share of the credit card market. The question is why?"
Russell emphasized that credit unions, with their close member relationships, have even greater data at their fingertips than big banks.
"Credit unions are sitting on this treasure chest of data they could use not only to drive more credit card usage but create more value in terms of offers," said Russell. "Data analytics is really the next wave of how credit unions can compete with the big banks. We have not done a really good job of targeting to the right people with the right offer. Plus, the big banks' credit card marketing engines are back. Credit unions need to be in this game if they want to compete in the payments space long-term."
What Most Stands Out
Shevlin said data analytics plays a large role in the big banks' strong credit card share. In his study, Shevlin asked big users of data analytics for details on the impact the programs are making. He found that the more experienced analytics users did better on deposits than those that did not rely on the data tools. "But what really stood out is that their credit performance is significantly better than those that did not use the data programs."
The analysts agreed that being successful with analytics means using the tools correctly to dig well below top-level demographic data, such as age and gender. Todd Herren, chief technology officer at TMG, said, "You are looking more at spending patterns-are you a transactor, a revolver, do you need to pay down your balance, are you inactive . . . It's about understanding behaviors and segmenting card users into groups in very complex ways so you can target members with offers that make sense to each of them."
Michelle Hillenbrand, director of marketing at Advisors Plus, St. Petersburg, Fla., which provides data analytics services to CUs, believes more credit unions are moving forward with the tools to gain a deeper understanding of card usage and member behavior. "Our business has grown about 300% in the last four years."
Advisors Plus offerings include managing the analytics program for the credit union, something experts say allows smaller shops to play in the space without having to hire someone with analytics capability-something needed to be successful at in-house card analytics (see related story). But even in an outsourced environment, it can be tough for smaller CUs to obtain the same results as bigger FIs.
Definable Behavior Segments
"We serve a fair mix of large and small credit unions," said Hillenbrand, noting smaller credit unions tend to shy away from a more customized approach in which a very large number of target segments are broken out, because their return on marketing investment is generally lower than big FIs. "The large credit unions shine in that customized environment because they can really break down their portfolio into even more definable behavior segments."
Hillenbrand explained that it can be cost prohibitive for smaller credit unions to break down their portfolio into a large number of smaller target segments because they don't have the volume in each segment as do the bigger outfits, which increases marketing costs. "They don't benefit from the economies of scale. They don't get the breaks on the marketing pieces or the discounts at the credit bureaus. The more volume you have to pump into analytics the more you can get out of it."
Digging Even Deeper
But digging deeper is the way of the future, said Michelle Thornton, senior product manager for CO-OP Financial Services, Rancho Cucamonga, Calif. "We have a data tool called CO-OP Total Revelation that marries actual transaction data and behavior spending with cardholder demographics. So you can see if that 18- to-21-year-old buys coffee at Starbucks more than three times a month."
A deeper reach, according to fisoc, Austin, Texas, includes using social media data. When members come on board with its Buzz Points merchant-funded rewards program, they are asked if they will allow Buzz Points to access their social media activity so offers can be better targeted.
"When we sign up an end user we ask to get access to their social graph information, we get info on where they went to college, are they married or single, what do you have posted on the web, what forums are you in? Whatever they have posted inside social media we have access to," explained CEO Jay Valanju. "About 50% give us this access."
Competing in the credit card market isn't going to get easier, and banks have the lead. But Hillenbrand is optimistic.
"Yes, the big banks have been using analytics for many years and more credit unions need to get into this game. While credit unions may be behind, it won't be that hard to catch up and even beat the banks because of the credit union's relationship with their members. They will be fine if they can give the right member the right offer with the credit union's name attached with it."
No Way Around It
Aite's Shevlin summed up the situation facing the CU industry, saying there's no way around using analytics.
"What, do some credit unions think they can just hang out their shingle and say we have a credit card and everyone comes knocking on their door because they are the beloved CU," asked Shevlin. "That's not the way it works. You've got to segment the market, figure out who your card appeals to, how it differentiates from other cards, and figure out the channels by which you'll reach these people. Analytics is the name of the game anymore with credit cards. If you don't get in, you may not lose-but you certainly will not win."
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