AUSTIN, Texas — A number of misconceptions about debit rewards programs are preventing some credit unions from offering them.
That is the message from Buzz Points, a loyalty vendor that offers its eponymous rewards program to community financial institutions. Buzz Points rewards consumers for choosing local businesses over national chains, and for banking with a local credit union or bank.
Buzz Points (the company) recently participated in a perception and awareness survey with CUNA Strategic Services. The two parties said the study "uncovered a number of consistencies as well as misconceptions regarding debit rewards programs."
Specifically, when credit union leaders said they were not motivated to add a rewards program, the reasons cited — difficult core integration, expense, lack of value — were inaccurate, according to Dwayne Spradlin, president and CEO of Buzz Points.
The study suggested the lingering impact of the Durbin Amendment, which affected the profitability of debit rewards as they were structured at that time, shapes some of these misperceptions. Buzz Points said many rewards programs have evolved to overcome the challenges Durbin presented.
Credit Union Journal asked Spradlin to list the most common misconceptions about rewards programs. They are:
Misconception: Consumers demand mobile functionality above all else.
Fact: 88% of consumers consider rewards to be their top priority when choosing a financial institution.
Misconception: Institutions bear point liability for all rewards programs.
Fact: Many newer rewards programs have removed that liability from FI balance sheets and taken it on themselves.
Misconception: Rewards programs must integrate with an FI’s core processing system.
Fact: Some rewards providers, including Buzz Points, do not need to integrate directly with a financial institution’s core. These providers are able to operate with secure, daily reports from the core — a much simpler process than actual integration.
Misconception: CU executives say "increased loyalty," "lift in interchange revenue" and "providing value to members" are the most important features of a debit rewards program.
Fact: Some 80% of highly effective loyalty programs have a dedicated team to support ongoing marketing, implementation, cardholder technical support and other aspects. All of these factors can contribute to increased loyalty and value but are more essential in driving success and providing a satisfying debit rewards experience.
Misconception: There is no opportunity in the debit rewards space. CU executives claim that member value, loyalty and revenue are the most satisfying rewards program factors.
Fact: The passage of the Durbin Amendment (and the associated interchange rate caps) forced many larger institutions to drop their debit rewards programs, leaving tremendous opportunity for community financial institutions to provide sought-after debit rewards to local consumers.
"While member value, loyalty and revenue are important, marketing, data analytics and cardholder support are proven to drive rewards program success, and credit unions should place greater value on these elements when choosing a rewards provider," Spradlin said.
Program Costs = Part of Marketing
The cost of rewards programs vary widely. Many programs, at minimum, charge initial set up or implementation fees, but Spradlin said programs can be designed to ensure that no costs are passed along to members.
"Rewards programs help credit unions acquire and retain members, market the value of the credit union and build their roles and relationships in the local economy," he said. "Many credit unions that have implemented a debit card rewards program view it as a critical part of their marketing and business acquisition spend. They actually shift dollars from other marketing programs because they get measurably better return on those expenditures when applied toward their existing rewards program."
Buzz Points’ internal data found a 44% increase in monthly transactions and a 46% lift in spend among Buzz Points users, compared to the national average.
Another emerging trend is Buzz Points and other rewards programs have actually taken on program point liability. In these instances, Spradlin said, a CU’s program performance and costs become "much more predictable."
"It takes a breadth of experience and tools to ensure value while responsibly and predictably managing those costs," he explained. "Rewards program providers that take on the point liability tend to be experts in managing this complexity for their clients."
The Findings
The study found two camps exist among credit union decision-makers: first, those who see great value in rewards programs; and second, those who are not excited. Although the former is the larger of the two camps, those who view rewards programs in a negative light are still a "significant number."
"There is a range of factors why some credit union leaders are not motivated to add a rewards program," they wrote. "This survey discovered most of them are misconceptions (e.g., difficult core integration, expense, lack of value). Plus, the survey found many executives are largely unaware of how important such rewards have become to consumers as they choose their primary financial institution. Unsurprisingly, when these factors are illuminated, it tends to change opinions on the need for debit rewards to increase retention and loyalty."
For proof, the authors pointed to the survey results from CUs that offer debit rewards. These credit unions say they are very satisfied with their programs compared to the small number that are unsatisfied. Revenue is attributed as a primary factor in the satisfaction of their rewards program, though the value it provides members — which, in turn, creates loyalty — is the top reason cited for satisfaction.
