The Killer Card App? It's The Simple Basics

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FT. LAUDERDALE, Fla.-So many financial institutions are searching for the "killer app" in growing credit cards that they've lost sight of what works best: the basics, according to one analyst.

Kevin O'Donnell of Discover Financial Services told NAFCU's Growth Conference here that it is the "fundamentals" that remain the best strategy for expanding card portfolios and profitability, and that credit unions have inherent advantages over other providers.

O'Donnell pointed to research conducted by Javelin on Discover's behalf that polled consumers for what they value most in financial product relationships. The top two products rated by consumers were credit cards and debit cards. "These enhance your loyalty with members more than any others," said O'Donnell. "As an industry, credit unions have higher loyalty than national banks and even the community banks. Members value the relationship, and you have a lot of competitive advantages in the marketplace. How are you leveraging those to grow your brand and, in particular, your credit card program? This is about doing better than the next institution, and attracting new members."

What should trouble-and excite credit unions-said O'Donnell is that just 29% of CU members have a plastic card from their credit union, leaving an enormous slice of the market to be penetrated.

Some of the Basics

According to O'Donnell, some of the basics that should be deployed to boost penetration rates and portfolio growth include:

• Providing right offer to right member at right time. "This is going to require some specificity. Who doesn't have your card? Who used to use their card and isn't using it now? Who isn't using it as much as they used to?

Noting the number of cards in circulation is down 25% over just a few years ago, O'Donnell said it's that specific data that's needed to not just target but to make a relevant offer. "You've got to motivate the member to respond to your offer."

What motivates consumers? O'Donnell said the number-one reason, by far, is no annual fee. Online account management is second. "Good customer service is another primary reason, and you're known for it. The next two are flexible rewards followed by low APR. If I'm a transactor, I want rewards. If I'm a revolver, I want low APR."

• Understanding the credit card lifecycle. There are five steps to the lifecycle of credit cards, said O'Donnell: acquire, engage, grow, intervene and retain. He placed most of his emphasis on the first three.

"What you need is a highly relevant and targeted acquisition strategy," he said. "But that doesn't mean giving everyone a credit card. It means taking advantage of the relationships you have with members to help them. And one way to do that is about the right credit card offer. You want and your employees want to help members improve their financial lives."

O'Donnell urged credit unions to recognize that consumers shop for credit card offers online, and that 23% of consumers who search online are much more likely to submit an application.

"They may or may not be creditworthy and may or may not be the people you want, but there is a high percentage of people out there looking for credit," he said.

That means responding to consumer preferences. "Think about apps. That was a business that didn't exist just a few years ago. So one thing you need to ask yourself is where am I online? How am I promoting my brand online? It's not just the millenials. The Baby Boomers do a lot online. You need to think about how you're going to act in a mobile world."

'They Want The T-Shirt'

A particular weakness, O'Donnell said, lies in the engagement step. "You've got to take steps that encourage people to use the card-not just to get the card. The sweet spot comes in the first few months in getting someone active. And there is a difference between incenting someone and someone who is loyal."

The next question to ask, said O'Donnell is how members are using their cards. "It used to be that credit unions had about two-thirds revolvers vs. one-third transactors, but that has changed over the past few years. Now it's about a 50/50 mix. That's very good for you.

Acquisition is only as good as the activation, noted O'Donnell. Members must be "persuaded" to use their new cards. "The key metric when putting out a new credit card account is what steps are you taking over the next few weeks to make sure the member has activated."

"One thing that's critical is follow up communications through multiple channels: card carrier, letter or e-mail, followed by personal phone call," continued O'Donnell. "Give them an incentive not to get the card, but to use the card. You earn the incentive when they use it, i.e., a $5 gift card or a merchant discount offer. Lots of merchants would love to do a cross-promotion with the credit union. This is a great opportunity local credit unions have that big banks do not."

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