11 minutes
Performing card portfolios inherently meet member needs and demands—driven by skilled market segmentation with competitive, appealing and easy-to-understand offers. The best portfolios do not offer a bevy of choices. Instead, they offer the right choices, built around carefully defined member segments that mesh with the cash management and payment needs of each.
Traits of Performing Portfolios
“Rather than diversity in your card platform, successful portfolios are built around competitive offerings that meet member needs,” says Chris Joy, principal at CUES Supplier member Advisors Plus, St. Petersburg, Fla., a consulting arm of CUES Supplier member PSCU, also in St. Petersburg. “It’s about understanding how your portfolio appeals to your desired segments, and how to market and leverage your card’s competitiveness to acquire cardholders and grow balances.”
CUs must also understand the different ways members view and use their cards, adds Tim Kolk, president of TRK Advisors, Peterborough, N.H. Is the card transactional for the member? If they use the credit side, are balances carried over each month? Or are members paying off their balances monthly? Rather than a low rate, do they seek rewards as a differentiator? Next is determining which of these segments a CU should satisfy, matching their products as closely as possible to each segment.
Is it as simple as bundling card features?
“Yes, as long as the CU understands the segments it wants to reach, the card has the right features, and the CU can effectively communicate that,” explains Kolk. For credit cards, it can be a mix of rate, reward, security and access features. “Bundle the features of your core products to address the desires of each segment, rather than trying to design a unique card for each segment. Marketing messages should stress different parts of the value proposition for each segment, even if it is a single product that covers several segments.”
To hone results, Kolk suggests marketing different offers to different segments, analyzing results and then doing it again. He also notes that while most members have a preference for either debit or credit when it comes to payments, migration to one or the other can be hard.
Part of the Value Proposition
Bill Handel, VP/research for Raddon Financial Group, Lombard, Ill., advises CUs to take the “long view” when analyzing their card portfolios, stressing that credit and debit cards will stay central to a CU’s value proposition—“one, because of interchange income; and two, because credit and debit cards are core product offerings integrated into the household early.” Goals should include increased penetration on both the credit and debit side and ensuring the programs are profitable and optimized. “This optimization should drive the decision in portfolio structure, and the number and types of card products a CU offers,” adds Handel.
Kolk is also adamant that for too long and in many cases futilely, CUs have tried to lead with rate as the differentiator for credit cards: “Statistics show that 60 percent of members don’t care about rate; the key is to serve as many segments as you can with a simplified, yet powerful set of products that vary by promotional cues based on actual member behavior. For example, specific elements of the value proposition you stress to various segments can change even though segments are offered the same product.” Kolk says a CU may emphasize cash-back value to some, bonus point opportunities to others or even low rates and fees to another segment.
He typically recommends that a CU offer three baseline (consumer) credit card products: 1) an attractive rewards option, positioned as a Signature or World product to fund reward-level expectation; 2) a rate-focused card with risk-based pricing, and 3) a credit-builder product. (The last can be viewed as a member service, though it’s almost never a money-maker.) “Also consider a business credit card if you have meaningful direct business relationships,” says Kolk.
Kolk explains that Signature (Visa) and World (Mastercard) cards are product categories that are one step higher than Platinum and are popular with the large bank competitors. Both carry higher interchange rates that can support stronger reward propositions.
Rewards: How Much is Enough?
“The rewards market wants more and will change institutions to find the card they want,” stresses Joy. “Rewards also have to be compelling; especially for the segment that is actively seeking rewards. A point for every dollar in purchases won’t cut it for serious rewards users.”
Kolk admits he’s nervous about how CUs approach rewards, simply because so many programs are overly complicated, not competitive or lackluster. “The value of rewards offered by the big banks is escalating; 1.5 percent cash back is the norm, and some, like CitiBank, are as high as 2 percent.”
He is particularly impressed with what Capital One, Chase and American Express have done with their programs. “All have simplified and emphasized their reward values in consumer-valued ways over the past few years. Cap One pioneered the 1.5 percent cash back in the Quicksilver Card and reset market expectations. Amex moved into a broader demographic with its EveryDay rewards product (the first no-fee product broadly marketed by Amex.) Chase has become the largest issuer due to aggressive marketing and related segmentation; and millennials have embraced Chase’s new Sapphire card.”
“Remember, as a CU, you’re not competing with another CU or the local bank,” says Kolk. “You’re competing with the big players, playing defense against a barrage of direct mail and other media offers.”
Like Kolk, Handel encourages CUs to learn from the national innovators, adding that 80 percent of consumers nationwide have a rewards card in their wallet.
There is a growing awareness by CUs to be more competitive with their card portfolios, and rewards specifically, but fewer acknowledge what needs to be done. “Unfortunately, a failing program will fail slowly and be difficult to recognize,” explains Kolk. “But disciplined monthly reporting can help a CU analyze trends and identify a poor-performing portfolio more quickly.”
While there is no firm formula, Kolk suggests investing roughly half of 1 percent of outstanding card balances into marketing the program annually to remain competitive. “That sounds like a lot, but is much less than the large banks in proportion to portfolio size,” he adds.
Boosting Usage and Balances
Every CU should also understand how it is acquiring or attracting new cards. Is it at the branch? Events? Through direct marketing? By knowing where cards are coming from, a CU can:
- determine if specific member segments prefer different channels and fine-tune its marketing accordingly;
- discover if certain channels are not realizing their full potential;
- watch if the effectiveness of different channels is changing over time; and
- identify origination costs for each channel to make sure each generates suitable ROI and is worth the Investment.
To boost balances, Kolk suggests point specials based on usage patterns (i.e., where members shop) or by season (i.e., triple points during peak shopping times.) “Take any opportunity you can to reinforce your card’s value, that your card is competitive, and that you are attuned to what the cardholder wants,” reminds Kolk.
Timely promotions can also give employees a reason to talk to cardholders about using their card, says Handel, and for non-cardholders, it’s an opportunity to build awareness. “For rewards, point redemption is also an absolute must,” he adds. “According to our research, members who don’t redeem points from their card are more apt to be less satisfied with their overall rewards program.”
There is a break-even point between redemption and breakage (points expiring), and the key is to find the sweet spot. While a CU cannot maintain 100 percent redemption, Handel asserts that redemption levels can be as high as 60 to 70 percent. “Redemption drives loyalty to the card, and there is a correlation in data that stronger use of the card leads to the use of other products.”
The Next Big Differentiator?
Handel believes mobile card control options are the next card attribute consumers will look for: “These give the cardholder the option to turn their card off or on via their smartphone. Cardholders can also manage spending by merchant and impose transaction restrictions for added levels of security.” According to the 2016 Raddon Research Insights Study, only 5 percent of CU cardholders currently use card control features, but a whopping 42 percent are likely to use them.
“Although it’s a relatively new concept for CUs and banks, Discover has heavily marketed this feature, and it has been favorably reviewed by consumers,” explains Handel. “The demand also appears to be more inter-generational than most technology-based services, appealing to a range of age segments.”
Becoming a Card Contender
When $2.5 Billion BCU, Vernon Hills, Ill., revamped its card portfolio in 2016, it wanted to deliver high-value rewards with a focus on simplicity and transparency. The CU analyzed its own portfolio, including penetration, card spend and account growth, as well as what other successful cards in the marketplace were doing. “Within a highly competitive payments space, we realized an overhaul of our card portfolio was overdue,” says CUES member Mike Fox, director/lending product management for BCU. “And with rewards comprising over 75 percent of all credit cards in the U.S. and 90 percent of credit card spend, transforming our rewards program was critical.”
The CU liked the simplicity of the Capital One rewards program compared to more complex cards like Discover or Chase Sapphire, which can involve rebate tiers, purchase caps and rotating quarterly bonus categories. “Complexity dilutes the competitiveness of the offer,” explains Fox. “It also makes your program more difficult to market, harder for staff to explain and members to understand.”
In April, the CU launched its new Cash Rewards Visa card, and today returns 1.5 percent cash back (unlimited) to members on all purchases, with no annual fee and an APR as low as 10.15 percent. The CU’s revamped Travel Rewards Visa card, which rolled out last year, returns two points per every dollar of purchases (unlimited), with no annual fee and an APR as low as 10.15 percent. The value proposition for both products is designed to target Signature-eligible members, which helps the economics of the program through higher interchange.
Fox believes in maintaining simplicity with rewards, including:
- value-added benefits that are easy to translate to members;
- simple, straightforward calculation of what members get for their spend; and
- easy redemption.
BCU’s Cash Rewards card currently drives about 45 percent of new volume growth. “It has the broadest appeal and is the fastest-growing segment for us,” says Fox. Still, he encourages CUs revamping their card portfolios not to forget a basic low-rate card, simply because of the appeal to members who carry revolving balances. “Members in this segment are rate-sensitive; they’re less focused on perks, but value the ability to save on the balances they carry.”
Investing in the Debit Side
“It’s harder to predict where debit card rewards will end up,” says Norm Patrick, principal at Advisors Plus. “Many CUs are currently resisting debit rewards unless the merchant is funding it.”
However, Kolk suggests taking that extra margin from interchange and investing it back into the CU’s value proposition, using the difference to market and strengthen its program. Handel adds that debit rewards can pay for themselves through an increase in activity, which can be driven by periodic incentives to boost usage. “Debit cards will remain an important part of the mix, with younger members gravitating towards debit to avoid the debt levels they saw during the financial crisis with older generations,” says Handel.
Debit Rewards
Like hundreds of other CUs, $505 million Vibe Credit Union, Novi, Mich., offers a Visa debit card as a convenient payment tool for members. It does, however, do something uniquely different to build loyalty. The CU positions its debit card and savvy rewards program, Purchase Rewards, to attract its target demographic—individuals age 25 to 45. Debit rewards are also used to reinforce the CU’s brand pillars, including its promise to deliver exceptional convenience through cutting-edge technology.
Purchase Rewards is available to any checking member and is merchant-funded, with no cost to the CU. “The program is provided by Digital Insight and integrated as part of our online and mobile banking experience,” explains Chief Marketing Officer Tyler Ross, a CUES member. “Members see their rewards accumulating and receive personalized offers daily based on their spending habits and where they like to shop. Offers can be viewed within online or mobile banking, and activated at the retailer when the member uses their debit card for payment. The cash reward is then later deposited into the member’s checking account.”
The program is an all-around win: It creates loyalty and interest, and the offers are relevant, including such retailers as Kohl’s, Lowe’s and JCPenney. “We promote the program as a way to differentiate our checking account and, being a free member benefit, it helps to keep our card top-of-wallet,” says Ross.
The monthly member impact:
- over 90,000 cash-back reward offers are served to online and mobile banking users;
- on average, 63 percent of members view their unique cash-back offers; and
- nearly 30 percent of members activate and redeem their cash-back offers.
Vibe CU promotes its debit card program, including rewards and card personalization, in all marketing channels, including newsletters, statement inserts, online banking banners and website landing pages. Ross estimates that marketing messages hit more than 25,000 members during any given checking campaign and, as of August, reports 76 percent checking account penetration.
Card Contenders
Simple yet appealing card portfolios are setting today’s card contenders apart. “We won’t compete with the large national issuers in terms of marketing spend,” concludes Fox. “But we can make our card programs more appealing, with relevant and highly competitive rewards, using member loyalty as the differentiator.”
Stephanie Schwenn Sebring established and managed the marketing departments for three CUs and served in mentorship roles before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers, and any company wanting great content and a clear brand voice. Follow her on Twitter @fabprose.
