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McGuire says the question for credit unions is, if they want a certain percentage increase in debit card use, what do they have to do? “Rewards programs can work if they properly incent members. But credit unions have to be able to measure a program’s effectiveness and ask if their rewards programs are doing what they should.”
She says PULSE has been a proponent of going beyond straight points or cash-back programs to those that look at a member’s overall relationship with the credit union. “Such programs reward members for actions beyond debit card use and in the process tie members closer to the credit union while generating measurable revenue or savings.”
PULSE has developed an analytics tool, “PULSE Debit Dashboard,” to help clients see when and where debit transactions are taking place and for what types of goods and services. The “dashboard” approach creates a user-friendly interface that allows users to drill down into data to help them analyze their rewards programs.
McGuire suggests rewarding members for using automatic deposit, online banking, bill pay, and loans, and for moving outside accounts to the credit union.
“Each credit union is different, and a good rewards program should be flexible enough to fit its specific needs,” adds Thornton, who agrees that rewards can apply to any member behavior a credit union wants to encourage.
Guerry likens the effect of the Durbin amendment to the industry taking a pay cut. “Curtailment of interchange income means credit unions will become more selective in determining whom to offer these programs. A good program will offer—in one word—value, whether it’s in the form of merchandise, cash back, or airline miles. There’s no one ‘best’ approach. Each credit union has to determine what resonates with its members.”
Thornton offers this advice to credit unions offering debit card rewards:
- Market often and well;
- Tweak the program as necessary—what worked at one point might not down the road; and
- Don’t think you can’t afford it. A program such as merchant-funded rewards carries little risk or expense.
CO-OP Financial Services recently launched a standalone, merchant-funded program. The turnkey, cash-back program provides an online portal that awards points and discounts to cardholders for patronizing participating businesses.
Merchants pay for the site and give credit unions rebates for driving traffic to the portal and some brick-and-mortar stores. The rebates pay for the cost of the program and in some cases become a new source of revenue.
“The more you market and publicize your rewards program via all your touchpoints, the more members will use their cards,” Thornton says. “That makes them more engaged with you and more likely to purchase other products you offer. The end goal, of course, is that you make more money.”
Guerry says that even with Durbin’s negative effects, a higher percentage of credit unions will offer loyalty programs five years from now than do so today. “Financial institutions simply have to offer some sort of rewards program.”
Cash is king with rewards
Nearly two-thirds (61%) of consumers would choose cash over other types of rewards when given a choice, according to a national consumer poll by Pinnacle Financial Strategies.
“No preference” was the next most common choice (14%), followed by more interest on deposit accounts (11%), discounts (9%), and airline miles (5%).
In addition, 43% of respondents said they would “definitely” make more purchases with their debit cards if they had a cash-back rewards checking account.
“Research in the marketplace concludes that the best rewards program for any institution to offer is cash-based,” says Pinnacle CEO Joe Gillen, who adds that consumers often become frustrated with points-based programs.
“Over time, the points you need to acquire something increases,” he says. “What you’d get for 10,000 points at the start of a program—when you can’t reach 10,000 points—changes in years two, three, four, or five when the value continues to drop.”
The use of points and miles-based rewards programs are not effective in acquiring or retaining members, Gillen says, because it often takes a long time to earn and redeem the rewards.
“Immediate gratification,” he says, “works better with all walks of life: Members did what you wanted them to do and they’re compensated for it. It’s action and reaction, which is an age-old marketing, value-add concept that always seems to work.”