Every year, typically around the winter holidays, credit unions with excess profits distribute bonus payments to members. The patronage dividend is exempt from taxation and allows cooperatives to share their prosperity with members. How each credit union distributes these payments varies, but often the dollar value is scaled to the amount of products and services the member uses.
In 2012, 215 credit unions — or 3.1%% of the entire industry — refunded loan interest to members. Collectively, $52.1 million dividend rebates were given out, with DFCU Financial ($3.3B, Dearborn, MI) leading the pack at $7.9 million in loan patronage dividends and another $14.0 million in deposit dividends.
But whether the collective dividend is $9 million or $900,000, returning that cash to the membership puts cooperative ideals into action by sharing the wealth and showing appreciation. Sometimes, though, that message doesn’t come across and the member may not even notice the cash deposit, which may be one reason why the majority of credit unions don’t offer patronage dividends.
CU QUICK FACTS
Wright-Patt Credit Union
HQ: Fairborn, OH
12-MO SHARE GROWTH: 11.03%
12-MO LOAN GROWTH: 18.83%
A Missed Opportunity
Before Wright-Patt Credit Union ($2.5B, Fairborn OH) hit on its current system for distributing patronage dividends, the management had tried several tactics. They returned excess profits to members by improving dividend rates, lowering loan rates, or decreasing fees. As CEO Doug Fecher is the first to admit, he and his team didn’t always get it right.
“The first time I remember was in 2001, when we just increased every member’s regular share account dividend rate by 0.50%,” Fecher says. “I think the big mistake we made on dividend was that we didn’t really explain why we did what we did. I doubt most members back then even recognized that they’d received anything extra.”
Even though the credit union’s newsletter mentioned the dividend, the positive news didn’t seem to register with members. Given that many members don’t understand the difference between a cooperative and a bank, the payout could have been a chance to educate them about why the credit union – and not a bank – could offer this benefit. In other words, the payout was a costly missed opportunity to promote one of the biggest selling points of belonging to a credit union.
“Those dividends were really expensive, and the credit union didn’t receive much value by paying them,” Fecher says.
A New Approach
With nothing to lose, Fecher and his team decided to try something different. In 2009, they offered the surplus profits in a year-end lump sum, scaling individual bonuses to each member’s use of the cooperative’s services. The message they hoped to convey to members was, in Fecher’s words, “Here’s this unwritten contract we have with members: The more that the members use the credit union, the more resources will be generated within the credit union, and the more we can give back to members at the end of the year.”
This time, however, Fecher and his team accompanied the bonus payout with a marketing campaign.
“When we resumed the program in 2009, we knew we had to do a better job explaining to members a couple of things,” Fecher says. “First, that they were even getting a dividend in the first place. Second, the reason for the dividend was that Wright-Patt was a not-for-profit cooperative, and as such, any excess earnings should be returned to the members as a matter of principle. And third, that the dividend amount was based on how much each member used the credit union.”
The marketing campaign was divided into pre-payout and post-payout stages. Before the payout, Wright-Patt implemented the campaign with email blasts, postcards, and web ads informing members about the dividend, the reason for it, and how the amount would be distributed. One year, Wright-Patt even mailed personal letters to each member explaining the dividend. After the payout, Fecher and his team followed up with another campaign, this one sharing the members’ stories. On one occasion, Wright-Patt invited members to send in videos about what the dividend had meant to them and then posted the most entertaining results on the credit union’s website. The repeated marketing served a purpose.
“Our marketing philosophy has always been to keep our messages short, focused, to the point, and then hammer them home. That’s why we advertise the dividend both before it is actually paid and after,” Fecher says. “You must tell them often, because like most advertising, it takes a lot of repeat exposures for a message to get across.”
A Long-Term Strategy
Though the program’s first year generated some initial confusion, the feedback since then has been overwhelmingly positive, and what began as an ad-hoc tactic has since grown into a long-term strategy. In the three years since Wright-Patt reintroduced its patronage dividend program with the marketing campaign, Fecher has seen the credit union’s membership grow along with the size of its payouts. The cooperative’s rate for adding new members was projected at 10% for 2012. With a membership already 230,000 strong, that means Wright-Patt should see an addition of roughly 23,000 new members.
At the end of the year, the credit union offered its largest payout yet — $6 million dollars. Though that only averages to about $26 per member, a high-use member could receive a windfall of about $500 to $700.
But the monetary value of the dividend isn’t entirely the point. Instead, it’s about showing members how the cooperative’s ethics are put into practice and in the process starting a conversation about the true value of credit unions. Wright-Patt has taken the lesson it’s learned about direct communication and expanded on it. In 2012, the credit union sent its members what Fecher calls a cooperative report card. Just as a bank sends an annual report to its shareholders, the credit union’s report card updates its members about the credit union’s financial state, from the total value of deposits to the total amount of fees that members saved during the year. None of this, however, would have been possible without the learning experience of marketing the patronage dividend.
“It’s hard for me to emphasize how big of a difference maker this is,” Fecher says. “It’s opened up a conversation with the members that didn’t exist before.”