As 2011 draws to a close, it has been another challenging year for credit unions and their members. Credit unions are focused on two goals: (1) continually seeking new ways to serve their members’ changing financial needs; and (2) growing membership specifically with Generation X and Y.
One product that is often overlooked during this exercise is the credit card program. A May 2010 Javelin Strategy & Research study asked credit union members which product they valued most. Ninety-four percent said credit cards.
For credit unions, the opportunity to revitalize their credit products begins at the acquisition stage, but continues through activation, card usage and loyalty. When revitalizing a credit portfolio, it is important to understand what members look for in a credit card product. Research has identified four key elements that members value most:
- No annual fee
- Fraud protection
- Great member services
- Flexible rewards
By including these four components into your credit card offering, members will find your credit card appealing. Once members apply for your credit card and are approved, the task then turns to bringing the card to “top of wallet” and gaining loyalty from each card member.
Here are some suggestions you might consider that achieve cardholder loyalty:
Focus on segmentation. The same Javelin Strategy & Research study found that credit union members value payment products more than anything else. Just 29 percent of members have a credit card through their credit union. Do you know which are your most profitable member segments? Once you identify them, is there an opportunity to cross-sell other products that add to the bottom line? To start, consider breaking out offers to Gen X, Gen Y and Baby Boomers.
Create opportunities for contextual information specifically targeted to each segment’s wants and needs.
Offer your members the right products and rewards. Once you’ve identified needs and wants, you can target your offers more effectively. According to a Millward Brown Brand Tracking Study conducted in late 2009/early 2010, there has been a shift among credit union members from revolvers to transactors, making this an attractive, lower-risk portfolio. Simple cards will work best for some members while others prefer rewards. Offer credit, debit and prepaid products, so you address every market need. Since credit unions do local better than anyone else, choose a handful of local charities and allow your members to direct their cash rewards to nonprofits. Or better yet, allow your members to nominate and vote on which nonprofits should be included in the program.
Stimulate interaction with better financial tools. Credit unions are leading the way by providing financial management tools that teach their members how to be financially savvy, according to consumer payment research group Mercator. While it may seem counterintuitive, offering these tools on your website actually increases member engagement and helps members save. Adding incentives, such as adjusting interest rates for those who save regularly over time will also provide a boost to your reputation.
Add context. Financial tools are important. Information, particularly editorial information that properly addresses member segments, adds another opportunity for engagement, learning and saving. By increasing your members’ financial knowledge, you’ll help them make smarter decisions about credit cards, loans, savings and investing. When this happens, member loyalty grows.
Segmentation + contextual information + tools = increased retention rates. As your membership increases their engagement with your financial tools and targeted contextual information, they become far savvier about their money. Savvier members translate into increased retention rates, higher deposits and lower defaults. These members will soon become some of your most profitable, providing additional cross-selling opportunities.
There is another option: Do nothing and hope for the best. The problem is that the risks of doing nothing are huge. Self-educated consumers are seeking financial institutions who offer tools and contextual educational materials. Your credit unions want to capture those consumers, because they’ll put the highest value on saving and investing.
Another risk of the ‘Do Nothing’ strategy is that you won’t have anything that drives engagement. For your credit union, combining innovative tools, the right offers, top-quality financial information and great rewards with a local flavor is a formula for success.