Credit card programs must go beyond offering rewards

This is not a “Let It Be” strategy for managing your credit card portfolio. As much as I love Paul McCartney, he never managed a credit card portfolio.

Instead, “Get transactors transacting and let your revolvers revolve” is a proactive, targeted approach to growing revenue and forging a path to the eventual “top of wallet” triumph for your credit card.

The metrics for credit card success are pretty straightforward: more transactions equal more interchange. It’s why you want to get your “transactors transacting.” Every purchase is revenue for the credit union. Also critical is to always consider your members’ needs and understand why they use and prefer your card to everyone else.

Why members transact

What drives a member to use their card? Most will say it’s loyalty, and that’s an important consideration. Yet, there is something more important: the bond between institution and member. It’s about building trust, and developing a deepening connection over time.

Rewards alone do not create loyalty. Rewards are only part of the calculation when you consider that 14% of consumers pick a card based on points, according to Bankrate.

Bob Long, Chief Revenue Officer at Member Access Processing

Taking a holistic view of loyalty is the best approach. Knowing that only some of your members are interested in points means that institutions should offer other types of rewards, like cash back or zero-interest rate offerings. Today, loyalty is as important a part of what you offer as knowing what your members want.

Credit unions have mostly been prudent when offering rewards. This has not been the case for big banks that have offered high-value rewards to lure affluent consumers. However, this backfired as banks have had to retool their programs recently in order to prevent cardholders from gaming the cards to redeem the banks’ generous travel rewards and then dumping it soon after.

Loyalty is also a product of great service, something credit unions know well. A well-managed card program is the best service because the less effort it takes to use a card, the more likely it will be used. That’s the very definition of convenience and corresponds to the “incrementalism” of transacting.

Rewards are only one side of the equation. The other side is friction, or what’s stopping members from using the card? The more you can reduce friction, the more you increase incremental usage. Friction is when a card is declined for fraud, has to be reissued because it was compromised, or doesn’t work because of a system outage.

Knowing that a card will work every time increases trust and incremental usage. Incremental usage converts a normal cardholder with about 20 transactions a month, to a “high transactor” making 30 or 40 more transactions.

A successful card program gets the cardholder to use their card for most purchases. This is a holistic approach that credit unions are ultimately better at because they know how to build a relationship with their members. In other words, credit unions are able to combine loyalty with excellent service to establish deep trust.

Why members revolve

At credit unions, we recognize that paying off debt with regular payments is essential to building a strong credit history. In fact, having debt and demonstrating an ability to pay it off over time can help a member borrow money in the future and potentially increase their credit score. At the same time, revolving can be expensive for members and create debt problems if they continue to acquire debt that they cannot pay off in a timely matter.

However, borrowing is often the only option for many Americans. As we learned in the Federal Reserve Board’s Economic Well-Being of U.S. Households report, four in 10 Americans can't afford an unexpected expense of $400 or more.

In fact, if we examine total revolving credit balances, the credit card charges that roll over from one month to the next were $1.03 trillion as of January, according to a MagnifyMoney study that analyzed FDIC data.

These numbers don’t tell us why every person didn’t pay off their credit card. There are many good reasons for a person to carry a credit card balance. Credit unions have an advantage in educating consumers about credit cards, an advantage they can and should exploit.

Many credit unions tailor their credit card offerings to match member needs and wants. For instance, many credit unions offer reward programs that benefit local, community arts or service organizations at the local branch level. Credit unions can do this because of the more personal relationship they’ve created with their members, versus what we might see between a customer and a multi-region national bank. That personal relationship creates opportunities for education and customization.

Additionally, credit unions can leverage member relationships to build knowledge on the best ways to use revolving credit. This education should start with a simple truth: Credit cards are best if viewed as an interest free, 30-day loan.

In my opinion, credit unions should offer more financial education programs for pre-teens, teens, college students and new college graduates. Research shows that it’s never too early to understand how and why to use credit and debt.

Sound financial education is good business for the credit union. Connecting people together with similar financial needs will help current members, and it can also bring in new members through word of mouth or branch marketing.

Adopting a sound strategy means taking a comprehensive view of your credit card program within your institution’s mission and examining it alongside the genuine value you bring to your members. Seeing credit cards as another product line will only generate moderate success. Success can come from, “Getting transactors transacting and letting your revolvers revolve.”

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Credit cards Consumer banking Interchange fees Fee income Financial literacy
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