ONTARIO, Calif. -
From sodas at roadside attractions to the music downloads in the kids' music players, the so-called micro-payments traditionally made with cash have become the new frontier in debit payments. To push consumers to reach for their debit cards rather than that cash, many financial institution have added rewards programs, which are rapidly becoming a maturing commodity for consumers.
To differentiate themselves and to get consumers to become active debit card users, several analysts told Credit Union Journal that the key to making the program work now lies in "immediate gratification."
Case in point: the Member Rewards program from CO-OP Card Services. CO-OP, a unit of CO-OP Financial Services, has partnered with Dover, N.H.-based Rewards Now to enhance its Member Rewards program to get those rewards into the hands of members much more quickly. The Rewards Now program that will be offering products such as telephone ring tones that can be downloaded from the Internet for as little as 99 cents.
"Immediate gratification is great reinforcement at a relatively low cost," said CO-OP EVP Jim Hanisch. "I think that's a spot-on strategy for debit."
Not Limited To Debit
The program isn't limited to debit. Hanisch also said credit unions working with CO-OP Financial Services can assign rewards points to product offerings such as new loan approvals, CD campaigns and new savings accounts. Such programs are also an effective method of reaching out to Generation Y, which tends to be more frequent users of debit.
Hanisch said credit unions have shown a high level of interest during the first six months of low-cost rewards. "We target those who want and use (low cost rewards) regularly. It may be a stronger program than higher points. We think it will be a strong program next year," he said.
In Seattle, Dan Thompson, with Pemco Technology's Performance Analysis division, said he agrees with the importance of "immediacy" for rewards programs, but with so many types of rewards, credit cards and member needs, what's of special importance is the value of the reward to the holder. "It's about what's relevant to that particular person," Thompson observed.
Thompson said a higher value reward that involves a specific goal, such as taking several laps around a racetrack in a NASCAR stock car, for instance, can be a much more personal motivator. "It's got to be attainable for that particular card holder," he said.
Thompson said high point awards are just as important for a signature Visa card holder who might have a $100,000 balance and uses the card often who is saving for a once-in-a-lifetime vacation to a far off Pacific Ocean island.
"Depending on their spending habits, they might make it to American Samoa in a year where someone else can only buy a basketball," he said.
Another company is also reaching out to financial institutions and stressing the immediacy of its rewards program. Image Products, Inc., Wilmington, N.C., is touting a "My Rewards" debit program. Vice President of Sales Bob Sterner said his program guarantees a profit and will show results on monthly reports. Sterner said the traditional, airline-style rewards program rewards only the highest spenders or earners (around 15% of account holders) and can take years to purchase anything of lasting value. "The real opportunity is the 85%. Look at the entire base," he advised.
With members being able to earn, and also use, as little as 100 points, the MyRewards method is designed to be used on a regular basis and can be applied beyond just credit cards. Members can be rewarded when they join, refer new members, start a CD or undergo a financial review with a trained professional. Referring a consumer loan might bring in 200 points, a home refinance could grab 500 points and a new mortgage might be worth 800 points. Credit unions can also recognize member birthdays, anniversaries or the successful completion of a home equity line of credit. Each credit union decides how many points to reward for which action, Sterner said, and members rack up points quickly.
Hitting 100
In the case of debit cards, Sterner said My Rewards increases usage with the resulting interchange revenue for the CU.
"A hundred points sounds a lot more achievable than 4,000," he said. "The immediacy is key. That's crucial to changing people's behavior."
The products offered at the 100-point level aren't cheap or gimmicks, Sterner said. Teen savers can buy a new basketball, and parents can buy a roadside emergency tool kit or portable air compressor for flat tires or to inflate a soccer ball.
Members select their gifts online and it's mailed to their door. The purchased items are sent from one of six My Rewards shipping centers and are packaged with the credit unions logo. "Members don't even know who My Rewards is," Sterner said. "So it looks like it came straight from the credit union."
At the higher 3,000 point level, members can buy $250 gift cards from Southwest or American Airlines, and the 4,000 level features 30 gigabyte iPods and Sony home theaters.
Credit unions get online member access to the My Rewards website (which is co-branded with the resespective CU), a full-service call center and packaging and shipping. Sterner said a custom rewards website allows members to monitor points accumulated.
