To compete effectively with big banks and fintechs, credit unions must focus on increasing engagement with their members. This starts with finding new, innovative ways to generate a compelling member experience beyond their day-to-day banking transactions.
Establishing an emotional bond is key. According to a study of retail brands by Motista, emotionally connected consumers generated 306% higher lifetime value for a brand over those customers who were simply “satisfied.” In addition, emotionally connected consumers may spend twice as much with the brand, stay connected for an average of 5.1 years versus 3.4 years, and recommend the brand to others at a rate of 71% versus 45%.
One way credit unions can build on the emotional connections they already have with their members is through loyalty rewards programs.
According to The Loyalty Report 2021 from Bond and Visa, 73% of consumers are more likely to recommend brands with good loyalty programs, and 80% say that loyalty programs increase their likelihood to continue doing business with a brand. Both of these figures increased during the pandemic.
What is it about loyalty programs that increase member engagement and … well, loyalty?
Loyalty rewards promote active relationships
For credit unions, a well-designed loyalty program promotes active member relationships and enhances the primary financial relationship (PFR) with the member. Payments are the pathway to relationship primacy, and loyalty programs can help light the way.
According to a survey of 3,000 credit union members and prospective members CO-OP commissioned with consulting firm EY, 36% of respondents would switch more of their financial assets to their PFR if the institution began offering more personalized service and features, such as loyalty rewards customized for them and their unique lifestyles. Our research found that if credit unions invest in lifestyle banking product offerings, they can gain significant market share among both current members and prospects.
But well-constructed, creative programs have other benefits, as well. They can support members’ financial wellness, by rewarding good money management behaviors. For example, at least one national credit card offers cardholders the opportunity to earn 1% on every purchase, AND another 1% when they pay off those purchases.
For credit unions, loyalty rewards programs increase card usage by incenting members to keep their cards at the top of their wallets. And they can support payment portfolio growth, as well as overall membership growth, by attracting current and prospective members into the program.
Keys to a successful loyalty program
Card rewards programs have been around for a long time. But whereas the earliest incarnations were limited to travel rewards or cash back options, today’s consumers desire choice and seek out programs that offer multiple options to fit their particular needs. Specifically, cardholders want to earn rewards where they spend the most – or where they aspire to spend more. For example, within the travel segment, many consumers set a goal to save up for a dream vacation using the points they earn through everyday purchases.
In addition, consumers want to receive rewards with a high perceived value, which can be, but is not always, cash back. For example, someone who is less financially secure might rely on cash back, but as they become more financially secure, they often seek more aspirational rewards like travel, electronics, or luxury goods.
According to marketing firm Kobie’s 2020 consumer report, loyalty members with mixed redemption options stay in the program longer—more than two-thirds (68%) stay on for at least three years, versus only 44% in cash back only programs. This may be why the vast majority (82%) of programs that market themselves as “cash back” now offer additional redemption options.
Most importantly, members desire the flexibility to redeem their points easily and in ways relevant to their lifestyle. According to a 2019 report from HelloWorld, 60% of credit card holders value instant rewards or discounts and the ability to choose their rewards.
Reaping the “rewards”
Of course, the success of any loyalty program is measured through return on investment (ROI). ROI can be tracked through various metrics, such as share of wallet (how much the member spends with your card versus other payment methods), improved member retention, and overall credit and debit portfolio growth.
But the truest measure of success is felt when members enjoy heightened satisfaction, increased engagement, and a stronger emotional connection with the credit union. When designed and deployed properly, loyalty programs can positively impact all these measures, while building on the “People Helping People” philosophy that has long been the hallmark of the cooperative movement.
Creating powerful payment experiences that reward your members does not have to be difficult. CO-OP’s proprietary Lifestyle Loyalty solution supports a unified Debit and/or Credit loyalty program to reward your members based on their lifestyle. It is designed to position your credit union as the Primary Financial Relationship. To learn more about CO-OP’s Lifestyle Loyalty program, email firstname.lastname@example.org.