Finding a Niche Product
Affinity cards, at least from the surface, do not appear to be a key method of growth. But for Justice Federal, 25% of their new members result from affinity groups. Tasked by the Board of Directors to keep the field of membership closely tied with the Department of Justice, the credit union executive team did not accept that the challenge would restrict their growth. Instead they identified groups that closely related to the membership base and leveraged inherent strengths to design products to appeal to those specific groups. These groups were often located remotely and needed service regardless of location. As such, the executive team recognized the need for a mobile and universal product that needed no branch support.
In addition to meeting the credit union's criteria, credit cards are a strong relationship building product. In June 2007, the Raddon Financial Group stated that a non-card household normally uses 1.8 services at the financial institution while a card household uses 3.6 services. In all of its endeavors, the credit union tries to simplify processes and policies for both members and employees. Cindy Kenney, Justice's executive vice president, credits this philosophy as a driving factor of success.
Affinity cards leverage the strengths of the credit union and the value of membership. The online credit card application is very simple. Justice has completed underwriting and pre-approvals for specific affinity groups, further easing the application process. The applicant will receive notice of pre-approval, and can select to be evaluated individually to increase the credit line. Currently, 75% of the credit card applications come through the online portal. The membership application also has built-in lending qualifiers so that staff can offer a credit card on the spot. Kenney said, "We always try to give maximum limits – we don’t want members to have to call back for increases."
Thorough staff education is also important. By training and teaching the staff about the products' features, the front-line can have confidence in their knowledge of both the membership and credit union, while speaking to a product's benefits easily. Front-line staff are also awarded $5 for every new account opened.
Affinity cards account for 28% of Justice's credit card accounts. Kenny noted the importance of "responsible affiliation," as the credit union and affinity group are linked to each other. Other key considerations before actively pursuing the affinity groups include designing the product for them with the features they need. In an effort to discover what features are important to various segments of Justice's membership, a VP of the credit union asked all the employees involved in a meeting to take their favorite credit card out of their wallet and place in a hat. Roughly two-thirds of the employees chose a card other than the credit union card. If the credit union’s own card is not "top of wallet" for employees, what will make it compelling for members or affinity groups?
When looking for new partners, who do you look for? Groups that have a strong bond work best. Demonstrated strong identity and pride in a group affiliation means they will find pride in carrying the card. While Justice's niche is law enforcement groups, other areas include alumni groups, unions, teachers and strong community groups.
Kenny advised laying out in the contract the responsibilities for each group to avoid confusion or surprises down the road. Marketing, in particular, can be shared by the credit union and the affinity group. The affinity group may not be willing to share their mailing list, but then must push any marketing materials out for the credit union. The card should be featured on both websites. Any print ads in the affinity group's publication or newsletter should be approved by the credit union due to compliance issues.
In exchange for the business opportunity, many credit unions, including Justice, offer a patronage share. This can be a percent of interchange income, a flat fee for every active account or other aspects that are agreeable to the group and the credit union. To encourage usage and prevent early losses on the program, the share can be delayed until there are a certain number of accounts or a designated balance threshold.
Two affinity groups have moved their service agreements to Justice from MBNA. With pre-existing programs, Kenney noted, "You have to sweeten the pot a bit." Current cardholders can stay with MBNA; incentivizing the switch can make a difference. Options include bonus rewards points with the first purchase or a nominal credit with every new card. The goal is to drive usage, not just have an inactive card, so the credit union adjusts goals and rewards accordingly with various groups. Other programs can combine debit and credit card rewards, developing loyalty and keeping both cards top of wallet.
As the affinity group is a non-profit association, ongoing support from the credit union is important. The credit union's marketing and business development staff can attend the group’s functions and support their causes. The credit union also pays patronage income. One affinity group recently topped $500,000 in patronage income from a share of interchange income. Knowing and understanding the impact of the program can make a difference in marketing and further growth of the program.
Justice's program has resulted in an average product penetration of 3.2 accounts for affinity groups, impressive considering many have no physical support system in their area. The average for the peer group of all credit unions $250M - $500M is 2.3. As of second quarter 2007, Justice's membership growth stood at: 3.4%. Kenney estimated that about 25% of new members result from affinity cards or affinity groups.