CUs Slow To Match Rival Cards' Savings Feature

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Two major card issuers, American Express and Bank of America, have introduced two different, competing card programs that share a common strategy: reward users by helping them build savings.

The strategy would seem a natural product extension for credit unions, which pride themselves on promoting savings and thrift, but the major credit union card processors told The Credit Union Journal they have yet to field any inquiries from credit unions seeking to deploy something similar.

Bank of America, for example, has introduced a "Keep the Change" debit card savings feature designed as a high-tech version of the old coin cup countless Americans have used to literally save their pennies over the years.

BofA customers can opt to sign up for the program that automatically rounds up every debit card purchase to the nearest dollar, then deposits the extra change into a savings account. For the first three months of the account, BofA matches 100% of the transfers. After that, the match is 5% a year with the maximum match set at $250 annually.

If a customer buys a latte for $3.50, for example, BofA rounds the total transaction amount up to $4.00 and automatically transfers the additional 50 cents to a savings account set up for the customer.

Meanwhile, American Express has rolled out its "One" card, which also offers an automatic savings component.

American Express contributes 1% of the cardholder's purchases toward an FDIC-insured, high-yield savings account-a sort of twist on the cash back and other rewards programs that have long been a staple of credit cards.

Backed By Research

"A lot of market research and in-depth focus groups went into the creation of this card," said Leslie Berland, director of public affairs for AmEx. "We didn't have any preconceived notions going into this, but what we heard was that there are a number of people who weren't all that excited about some of the travel points or other rewards programs out there, because maybe they don't travel that much or they're not interested in spending their money at fine restaurants, but they would like to find an easy way to save money."

Berland said it is too soon to project what the consumer appetite will be for the product, as it was only just rolled out last month, but if the market research and focus groups were any indication, there should be a strong segment interested in it.

That may be so, but credit unions have yet to buy into the notion, according to several CU credit card vendors.

"We have not had any credit union inquire about this type of program," said Kenton Potterton, director of credit services for PSCU-Financial Services, St. Petersburg, Fla. "We do already offer reward points on both credit and debit cards, and we forward those points to credit unions, which could then be posted to a savings account."

Ready And Waiting

In fact, Potterton said PSCU-FS has created the facility to launch such an automated-savings-based-on-spending program. "But no one has taken us up on it. We aren't actively marketing it, yet," he noted. "We want to assess what the appetite for this product is. We're not sure members will buy into this or not."

But some credit unions are offering a different twist on these card rewards and loyalty programs that most monoline card companies simply can't replicate, Potterton offered. "In some cases, credit unions are leveraging the fact that they have a total relationship with their members, not just a credit card," he explained. "So a member can use rewards to buy up a rate on a CD or buy down a rate on a loan."

And while a member certainly could choose to take a cash-back reward and put it in a savings account, PSCU-FS said it does not know of any credit union client that is offering to automate that process.

Glen Lee of TNB Card Services, Dallas, agreed. "I have long thought that a card product tied to a retirement fund or college fund would have appeal," he said. "But to date, none of our credit unions have done this. Many offer rebates or cash back, which the member could choose to put into a savings account, but I know of no credit unions who are delivering that cash to a specific savings vehicle."

The issue, Lee speculated, is one of mass. "I think that the BofA debit program is a little bit gimmicky. I mean, if I wanted to move 30 cents into a savings account, I would just do that. But from a credit standpoint, I can see the value of taking a piece of every purchase and putting it in an account where it will work for me. The problem is, that appeals to a very specific segment of the market."

While segmentation is an important tool for credit unions, they have to have a large enough group to be segmenting for it to work for something like this, Lee suggested.

"Segmentation like this sometimes only works if you are able to do it on a grand scale, and BofA is in a position to do it on a grand scale, but not all credit unions are. It might not be worth a credit union's investment in such a program," he related. "The instant gratification of cash back and rebates appeals to a much broader segment."

Still, Lee said he could foresee a target market in young, forward-thinking parents being interested in a means of saving for a child's college education, for example, or someone who is thinking long-term about retirement.

CSCU, Clearwater, Fla., also reported no interest from client credit unions in this new twist on rewards points. Nor had St. Petersburg, Fla.-based Certegy Card Services, which has been in the rewards program business for 14 years, according to Dennis Driscoll, vice president-loyalty services.

"We've presented this idea to our clients and talked with credit union CEOs, and there doesn't seem to be much interest in it," he said. "The prevailing thought is that these are just gimmicks."

Then again, that's what people initially said about airline points and cash back.

"Initially they thought these were interesting, but it wasn't until members started walking in the door with applications in hand saying, 'Can you match this?' Then everything changed," Driscoll related. "If these programs get traction and members start asking about them, we will hear from credit unions, and we'll be ready. One advantage credit unions have is that they don't have to be first. If BofA comes out with something and it gets traction, Chase has to go back to the drawing board. But credit unions have a unique relationship with their members, so that if BofA comes out with something and it gets traction, credit unions can say, 'Yes, we can do that,' and they get instant traction because of that loyalty."

The Key Question

The question, Driscoll said, is whether or not these programs actually work.

"It's essentially a forced savings plan, akin to taking claiming two on your tax return instead of one and getting a refund, when it would really make more sense to take the right deduction and then put that money to work for you all year long," he said.

But the benefit to the banks, he said, is very clear. "It's a way for them to acquire low-cost funds, funds that cost less than Fed Funds, because all those little 30-cent transfers can add up if there are enough of them, plus they acquire another relationship with the consumer," he said. "It's very clever."

TNB's Lee sees another advantage. "It's a pain free way to save money," Lee observed.

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