Driving Card Usage Through Debit Rewards Programs
Many credit unions have added a rewards structure to their credit card program as a way to remain competitive with other large financial institutions. Although credit card rewards programs are becoming more common, a much smaller number of credit unions have implemented similar rewards strategies for their debit card program. For those that have however, the results speak for themselves.
"Our first experience with a rewards program was tied to our credit card portfolio," says Tiffany Washington, marketing director at Texas Bay Area Credit Union ($191M in Pasadena, TX). "So many other institutions were adding rewards programs, we felt like we needed to do it to remain competitive," says Washington. The addition of credit card rewards took place in December 2005 and proved to be successful for the credit union.
Based on the success of the credit card rewards program, Texas Bay Area CU chose to adopt a similar structure for their debit cards in the spring of 2006. "It all comes back to making sure we are competitive," says Washington. "Not a lot of other credit unions were offering debit rewards, and we pride ourselves on staying ahead of the game."
In order to provide debit rewards to their members, TBACU paired with RewardsNOW, the vendor that provided their credit card rewards structure. For TBACU this made the process easier as the relationship was one that was already established. "We worked with RewardsNOW to develop the program. We set the number of points per dollar, and they were receptive to all of our suggestions," notes Washington. In the end, the rewards program was structured to offer members one point for every dollar spent using the credit card or every two dollars spent using the debit card.
Making changes to a product that your members use frequently can be a difficult decision for any credit union to make. Debit card usage at TBACU was extremely strong, making any changes to the program a potential risk. The good news for TBACU was that their members were very receptive to the program. "Our members really love it," says Washington, "The program offers a lot of quality products for redemption, and members really appreciate the ease of redemption." Through this program, TBACU was able to offer their members rewards in multiple forms, including: travel, merchandise, and gift cards.
A Cross-Sell Promotion to Launch
In order to introduce members to their new debit rewards program, TBACU developed a three-month loan promotion that focused on the debit rewards program. It was originally designed to drive loan volume, but was tied to the debit card as a way to drive growth in both areas. The terms of the promotion allowed an individual to receive between 5,000 and 20,000 bonus rewards points when they originated any type of loan, if they either had or signed up for the rewards debit card. The reward point value was assigned based on the size of the loan and was structured into four tiers, the highest consisting of loans with a value of $40,000 or higher.
"This program has been our most successful promotion," says Washington. "Our members love getting something for using a product or service that they already needed. The promotion fit very well within our mission statement: to offer each member the right product, at the right time, and delivered the right way." For TBACU, this program was a great way to drive loan and rewards volume up, especially during the crucial months at year-end. During the course of the promotion, TBACU was able to generate 253 loans, with 14 of those loans falling into the highest value tier. The net interest income received from the loans generated from this cross-sell promotion totaled approximately $62,000 on an annualized basis, with additional income throughout the term of the loan. For TBACU this amount was more than enough to justify the cost of the debit rewards program, especially as these loans continue to generate interest income throughout their terms.
Program Successes and Takeaways
Since the launch, TBACU has realized additional benefits from the debit rewards program. Over the course of the 12 months ending in March 2008, TBACU has seen strong growth in many key measures related to their debit card program that can be attributed to the growing demand and usage of their debit rewards program. The increase in monthly spend for TBACU members has gone up 19% for a total of $53 million. This growth in monthly spend is also partly attributed to the growth in the number of total accounts. The total number of accounts increased 40% to just under 12,000 accounts. A key factor in this growth was the members that signed up for the program during the loan cross-sell promotion. TBACU also experienced 19% growth in interchange income, an important factor in offsetting the cost of a rewards program. According to data from RewardsNOW, in the first year of implementing the programs, the average financial institution sees an 18% increase in "active" accounts, which includes: accounts from new members, new accounts from current members, and reactivation of accounts from members who had inactive cards. For credit unions experiencing this average growth in "active" accounts, the additional volume and income is enough meet and exceed the costs of implementing such a program.
Despite the success they have seen with the implementation of this program, there are still lessons that TBACU learned during the process that would benefit credit unions that are considering implementing their own rewards program. "Educating your members is key," says Washington. "You have to make sure your members are aware of the program and its features." According to the terms of TBACU's program, members get rewards only for signature-based transactions. This component was a focus of member education efforts, and TBACU has realized in an increase in signature transactions as a result.
Overall the program is one that has had measurable success at the credit union, and one that the members have had a very positive response to. TBACU's ability to offer their members an additional bonus for utilizing products they already needed was a quick way to make the project a success. "I'm glad we were one of the first credit unions to implement this program," said Washington, "We now constantly market it and it continues to see success."