Payments drive revenue, relationships, profitability and trust. Increasingly, they are the epicenter of your relationship with members as a key driver of preferred financial institution (PFI) status. But growing your credit and debit portfolios can be challenging, especially without focus. Three commonly-used metrics — penetration, activation and usage (PAU) — can provide that focus. By developing key strategies in these three areas, you have the opportunity to add more cards, activate cards quickly, and increase card usage to grow revenue.
Now is an ideal opportunity to contemplate portfolio growth. Why? Both debit and credit have momentum — and for different reasons. Consider these growth-related facts:
- Debit is the number one payment method by transaction volume, accounting for 69.5 percent of U.S. transactions. Debit is in constant use and it defines the relationship between financial institutions and their most committed customers.
- Credit use is on the rise. In its “2019 Outlook: U.S. Credit Cards” report Mercator Advisory Group projects a record number of open credit card accounts – 480 million – and record revolving debt of $1.10 trillion for 2019.
- Credit is profitable. According to data from TRK Advisors, average overall ROA for credit unions is 0.8 percent, compared to 4.5 percent for credit cards. Credit cards make up 5 percent of an issuing credit union’s assets, but they represent 30 percent of earnings.
- 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 banks and fintechs like Acorns and Venmo and even Apple vie for your members’ business.
How PAU 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 marketing and consulting programs to help financial institutions tap the potential of data to deliver personalized, analytics-driven campaigns. Through our portfolio analytics, CO-OP Preferred Marketing fully-managed quarterly campaigns, and SmartGrowth consulting team, we’re helping financial institutions plug into the power of data analytics even as we’re growing our capabilities by the day.
How can financial institutions increase penetration, activation and usage through analytics? Here are five PAU-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, we know that only 18 percent of most member bases have credit union credit cards, yet industry best practices say 30 percent penetration should be the goal. CO-OP SmartGrowth helps clients increase penetration of the member base by evaluating member data, segmenting and identifying qualified members, creating compelling promotional offers and partnering with each credit union on a communication strategy that fits each client’s needs and budget.
2. Amplify rewards. Simply put, rewards are a top driver of penetration, activation and usage — as well as satisfaction. Consider these statistics from the J.D. Power 2018 Credit Card Satisfaction Study:
- 47 percent of users who switched to a new card in the past 12 months did so for better rewards.
- Cardholders who had the highest satisfaction with the rewards points they earn per dollar rated their cards, on average, 170 points higher on a 1,000-point scale than their counterparts with “average” satisfaction.
- Highly satisfied rewards users were also the least likely to switch cards.
- Cardholders who fully understood their rewards programs spent an average of $307 more per month than cardholders who did not fully understand their rewards.
Bottom line: Investing in a robust rewards program and using portfolio analytics to grow PAU pays dividends across the board.
How do credit unions compete? Offering rewards should be a given. Beyond that, make sure your rewards program is robust, easy to understand (36 percent of J.D. Power respondents didn’t fully understand their rewards) easy to use and baked into the experience. Although cash back is popular now, using rewards points to “purchase” something – a plane ticket to Hawaii, for example – has a different emotional payoff than simply redeeming for dollars.
Whatever shape your rewards program takes, 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 credit lines are now viewed as equally important as competitive interest rates and robust rewards programs. Industry trends also tell us that as a cardholder’s balance nears 30 percent of their overall credit line, usage slows – or stops altogether. It’s more important than ever that credit unions manage their cardholders’ credit lines the same way that competitors do, which means pro-actively managing your cardholders credit lines. Reward your cardholders for responsible spending, and they’ll reward you with continued card usage.
4. Target activation. Do activation campaigns really make a difference? Results from a CO-OP Preferred Marketing campaign tell the story:
CO-OP’s “Spending on Springtime” debit activation campaign ran in March 2018. 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 6 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 5 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:
Goldenwest Credit Union in Utah discovered that members were spending 70 percent of their online dollars at Amazon, so they timed a rewards promotion to coincide with Amazon Prime Day. During the 36 hours that Prime Day ran, Goldenwest offered its cardholders triple rewards points for every dollar spent on Amazon. The result? Goldenwest increased Prime Day spending by 127 percent over the previous year. Better still, they’ve ensured that their cards are now available to cardholders every time they pay on Amazon.
Your credit and debit card portfolios are major drivers of growth, which is why you should be focused on expanding penetration, activation and usage (PAU). Data-driven campaigns make a science out of increasing PAU. Use the insights you gain from analytics to refresh your card programs and renew your member relationships.
The original article Minding Your PAU: How 3 Key Metrics Drive Payments Growth can be found on Insight Vault.