Credit cards comprise nearly 6% of the total credit union loan portfolio and are an important element in a well-rounded product suite.
“Our goal is to be our member’s primary financial institution,” says Matt Freeman, head of card products at Navy Federal Credit Union ($81.5B, Vienna, VA). “Providing valuable services on the card side is one step in that process.”
Credit card balances across the credit union industry totaled slightly more than $52 billion as of first quarter 2017 — an 8.12% increase year-over-year. And although that might pale in comparison to what banks hold, the credit union credit card penetration rate has steadily risen over the past five years, going from 14.96% as of first quarter 2012 to 17.19% as of first quarter 2017.
As card lending increases, credit unions are looking for additional ways to add value to their suite of products.
“It’s about creating a relationship where we’re able to return value that makes members want to do more business with us,” Freeman says.
How do credit unions return value?
One way is through credit card rewards programs.
In its “2017 Credit Card Rewards Report,” WalletHub ranked the best credit card rewards programs.
The top 20, primarily large bank programs, did include programs at five credit unions — including Navy and Alliant Credit Union ($9.8B, Chicago, IL). The study mostly considered the two-year value of rewards programs, potentially underselling the long-term value of the cards.
The average cardholder at Navy, for example, has had their account for 10 years, and Freeman says members can expect to see greater value long-term.
That said, lists and rankings such as these play a role in driving the decision-making process.
“Any time your products can be recognized is a good thing,” Freeman says. “We know consumers are evaluating these lists when considering which products to choose.”
Here, Navy, Alliant, and TDECU ($3.1B, Lake Jackson, TX) share best practices for starting and running a rewards programs.
Cater To The Member
CU QUICK FACTS
HQ: Vienna, VA
Data as of 03.31.17
12-MO SHARE GROWTH: 13.6%
12-MO LOAN GROWTH: 9.8%
Navy carries more than $12 billion in credit card balances on its books, ranking the Virginia-based cooperative as one of the largest credit card players among all U.S. financial institutions. Of its five credit cards, four have a rewards component, says Freeman, and 80% of Navy’s card balances are tied to one of those rewards cards.
“We want to provide options for our members,” says the head of card products.
At the highest end of its rewards products, Navy offers its Flagship Rewards card. The card carries a $49 annual fee, and members earn two points per dollar on each purchase redeemable for cash, travel, gift cards, or merchandise. When redeemed for travel, points are worth 1%.
“If a member spends $10,000 annually, then they would earn 20,000 points,” Freeman says. “Those points would be worth $200 in spend.”
Other products at Navy include its GO REWARDS points card, which earns three points at restaurants, two on gas, and one everywhere else. Its cashRewards card earns 1.5% cashback on all purchases, and its nRewards Secured earns one point per dollar redeemable for gift cards and merchandise.
"The products are designed so members can make choices for which product best suits them,” he says. The nRewards card is meant for members establishing or repairing credit, but Freeman emphasizes the credit union’s cards are not segmented by credit tier.
Navy Federal is a large operation, but Freeman says certain practices apply to any credit union jumping into rewards offerings. First and foremost, understand where members are spending their money and make sure the incentives provide value. Survey members, he suggests, and find out what they are interested in.
“As you design the rewards program, don’t get too far away from what’s important to most credit union members, like low fees and fates,” Freeman advises. “Those are going to be considered when they shop around. You cannot compete on rewards alone.”
Click through the tabs below for a deeper dive into Navy, Alliant, and TDECU'scredit card data. Click on the graphs to view in Peer-to-Peer.
Navy holds more than $12 billion in credit card loan balances. Alliant and TDECU hold $164 million and $134 million, respectively.
Navy’s credit card growth rate has remained relatively steady over the past five years. At Alliant and TDECU, growth rates have fluctuated.
TDECU’s average credit card balance has, for the past five years, outstripped balances at Alliant.
Alliant and TDECU rank close in terms of credit card penetration, at 19.37% and 17.25%, respectively. Navy’s credit card penetration rate neared 30% as of first quarter 2017.
Root The Decision In Data
CU QUICK FACTS
Alliant Credit Union
HQ: Chicago, IL
Data as of 03.31.17
12-MO SHARE GROWTH: 12.2%
12-MO LOAN GROWTH: 20.3%
For Alliant, member feedback plays an integral role in operations. In 2016, Michelle Goeppner, the credit union’s senior manager of card product strategy, wanted to create a true cashback card.
“We were losing market share to a true cashback card, but I wanted to make sure I was rooting my decision in data,” she says.
Results for a credit union survey supported her theory, and Alliant launched its new product in February of 2017.
Built for affluent members, the card earns 3% cashback on each purchase the first year and resets to 2.5% thereafter. The card comes with a $59 annual fee, which the credit union waives the first year, and has no limit on the cash back awards members can earn.