As shown in the Co-op CU Growth Outlook research study, conducted in partnership with EY and Filene, payments are key for credit unions to drive revenue and profitability. As fintech upstarts become increasingly competitive, engaging members daily through payments enables credit unions to provide a superior experience to strengthen member relationships and build trust.
But growing credit and debit portfolios can be challenging, especially without a clear understanding of members’ spending and payment behaviors. The ongoing tracking and analysis of three commonly-used metrics—penetration, activation and usage—can go a long way toward providing that understanding. By developing key strategies in these three areas, credit unions can effectively increase their members’ card usage and grow their portfolios.
Now is an ideal time to optimize growth in your payment portfolio. Why? Both debit and credit have momentum — and for different reasons. Consider these growth-related facts:
- Debit remains the most popular payment method, with 37% percent of U.S. consumers using debit cards to pay for purchases. Debit is widely used and it defines the relationship between financial institutions and their most committed customers and members.
- Credit use is on the rise. Meanwhile, credit card use is increasing rapidly. There were 365 million open credit card accounts in the U.S. as of the end of 2020, and balances rose to $841 billion in the first three months of 2022, a major comeback after a period of decline during the height of the pandemic.
- Credit is profitable. According to the Federal Reserve, credit card issuing banks with assets in excess of $200 million reported net earnings before taxes and extraordinary items of 4.14% of average quarterly assets in 2019. For comparison, according to NCUA data, average return on assets (ROA) for credit unions was just 0.94% in 2019. ROA is king, and credit represents a great way for credit unions to grow their bottom line while giving back to their members.
- Competition is fierce. Anyone who has checked their mailbox recently knows competition among card companies is intense. If your credit union doesn’t grow, it will likely shrink, as national banks and fintechs like Acorns and Venmo and even Apple vie for your members’ business.
How Deep Data Analysis Spurs Growth
Data is a big deal for our clients at Co-op: We’ve been integrating our networks and data, investing in AI and other advanced technologies, and creating expert advisory programs like Co-op SmartGrowth Consultant Services to help financial institutions tap the potential of data to deliver personalized, analytics-driven campaigns. With help from SmartGrowth, credit unions can tap into the power of data analytics to optimize their credit and debit portfolios and meet their members’ needs—now and down the road.
How can your credit union increase the penetration, activation and usage of your cards through analytics? Here are five relationship-boosting power moves to consider:
1. Size up your opportunities. We know your goal as a member-focused credit union is to get your cards into the hands of every qualified member who wants one. Based on industry metrics, only 18% of members have credit union-issued credit cards, well short of the 30% penetration goal considered best practice. Our SmartGrowth experts help credit unions increase penetration by evaluating member spending data, segmenting and identifying qualified members, creating compelling promotional offers and partnering on a customized marketing and communication strategy to fit every need and budget.
“Every membership base is unique, which is why every credit union will benefit from a customized payment portfolio strategy that considers the needs, lifestyles and life stages of each member segment, along with the credit union’s corporate goals, risk tolerances and desired outcomes,” says Deb Wieczorek, VP, Strategic Advisory and Portfolio Growth, Co-op SmartGrowth. “The key lies in analyzing your members’ payment behavioral data, and using those deep insights to craft a portfolio optimization strategy that includes the right product mix, targeted campaigns and rich rewards.”
2. Expand rewards. Simply put, rewards are a top driver of penetration, activation and usage — as well as satisfaction. Consider these statistics:
- 47 percent of U.S. adults say they’ve used a credit card solely to earn rewards points.
- Offering a loyalty program for your members has shown to increase card transactions by an average of 30%, increase member retention, and get your card(s) top-of-wallet.
- Rewards cards are used most often for everyday purchases like groceries, dining out and household items.
- Misalignment between rewards programs and spending patterns results in $756 in lower monthly spending, a 7% higher likelihood of switching cards and a 4% higher likelihood of cardholder complaints.
Bottom line: Investing in a robust rewards program aligned with your members’ behaviors and needs pays dividends across the board.
How do credit unions compete? Offering rewards should be a given – members expect it. Building on the solutions you already deliver to your members, rewards programs are an integral part of a strong payments and growth strategy. Beyond that, make sure your rewards program is comprehensive, easy to understand, easy to use and baked into the experience.
Wherever you are on your rewards program journey, take the next step and use targeted promotions to ensure they’re being used (and loved) across your portfolio. Rewards pay off best when engagement is maximized.
3. Manage your credit limits. Today’s cardholders are savvier than ever, and research shows that access to credit is just as important as competitive interest rates and robust rewards programs. As a cardholder’s balance nears 30 percent of their overall credit line, usage slows – or stops altogether. It’s more important than ever to pro-actively manage your members’ credit lines the same way as your competitors, by analyzing their usage, payment history and whether they carry a balance month to month. Reward your members for responsible spending, and they’ll reward you by keeping your card top of wallet.
4. Target activation. Do activation campaigns really make a difference? Results from a Co-op Preferred Marketing campaign tell the story:
Co-op’s ran a “Spending on Springtime” debit activation campaign and the team identified 10,450 inactive cardholders across 20 credit unions. Cardholders were offered a $10 “you choose” gift card for activating and using their cards to make five or more transactions.
Nearly six percent of cardholders qualified for the gift card. Of those, the average spend per card was $58. Even better, cardholders who qualified for the incentive increased their average spend to $756 and 19 transactions. Historically, this usage trend continues with less than five percent attrition.
5. Be the default in the digital world. Ensuring that your cards are the default payment method online and in apps is critical since cardholders seldom change their payment methods once they’re set. Also, taking an active role in encouraging usage can make a huge difference in members’ spending habits.
Here’s an outstanding example:
GreenState Credit Union was seeking to increase credit card usage and engagement among its membership. GreenState worked with Co-op’s SmartGrowth experts to develop a campaign targeting inactive accounts. Those members that successfully met a $300 spend threshold over a one-month period (September 15-October 15, 2021) were rewarded with 1,500 bonus rewards points or a $15 statement credit. The results? Of 548 accounts that qualified for the offer, 339 accounts (62%) were still active 4 ½ months later, and made the GreenState card their primary payment method. Interchange income on these accounts increased by 400%.
Your credit and debit card portfolios are major drivers of growth, which is why you should be focused on expanding penetration, activation and usage. Using data-driven analysis to understand your members’ spending behaviors will help you deliver compelling marketing campaigns, optimize your portfolio and establish healthy, growing primary financial relationships with your members for the future.
To help build a payments strategy that will support your members and help optimize your payment portfolio, contact Co-op’s SmartGrowth Consultants, who will work with you to analyze your member card data and identify new opportunities for growth.