By John Ainsworth
I had the opportunity to speak with many of you at the CUES Symposium in Hawaii in February, and when I asked the question, “Given the regulatory and revenue challenges, how many of you need a holistic payments strategy to support your credit union?” every hand went up. Understandably, credit unions have a lot on their plates in dealing with the realities of the economy, new regulations, and changing consumer spending behaviors. All of this puts pressure on payments profitability, but there are ways you can stabilize (and even advance) business during these turbulent times.
Now is as good a time as ever to reexamine your current payment card programs and implement a payments strategy to drive revenue and member loyalty in the long-term, beyond the implications of legislation today.
With the uncertainty of new regulations, we know that many institutions, including credit unions, will increase or change rates, fees or products offerings to generate additional income. Increased debit card fees or overdraft protection fees or the elimination of free checking accounts and/or lower deposit rates are all being evaluated. And one of the strategies we have begun to see is that some credit unions are trying to offset the sting of new fees to members with additional benefits and services. A prime example is introducing rewards to debit card/demand deposit accounts. As monthly or annual fees could soon replace free checking accounts, giving members the option of debit rewards for a $35 annual fee, or a $20 annual fee without rewards, could be the right positioning.
Not only is it helpful to offer new services while communicating new fees, but reward programs in general can have a very positive impact overall on member behavior. Today’s consumers aren’t relying on the traditional, hard-to-obtain rewards, but rather want to be recognized and rewarded for their everyday spending behavior. Customized segmentation can help credit unions identify the primary payment needs of target member demographics, and design rewards structures these consumers find valuable. Each credit union may see a differing impact, depending on historic behavior of members, marketing, and the overall value proposition; but it is not unusual to see a lift in activation rates, a 10-15 percent increase in usage, and most important – a reduction in attrition when engaged in a rewards program.
The reduced attrition is a compelling component. For example, if you have 20,000 demand deposit accounts that diminish by attrition at 12 percent each year, that is 2,400 accounts—and each may have $225 or more in value to you across your retail relationship. If so, reducing attrition from 2,400 to 2,000 equals a savings of 400 x $225—or $90,000! Each year!
The right rewards solutions can be priced right and can have a huge impact on inciting more profitable member behavior and retention in this changing environment.
More broadly, having in place a holistic payments strategy—one that accounts for the post-recessionary mindset of today’s consumer and brings to market cost-effective and valuable card programs—can help credit unions enhance member value, differentiate their brand, and increase portfolio profitability.
John Ainsworth is group head of U.S. markets, MasterCard Worldwide.
