Loyalty is a tricky proposition, especially as plastic cards have given way to mobile payments, and there is little mercy for those businesses that get loyalty wrong. That truth especially applies in the world of credit unions, financial institutions (FIs) that are always fighting to survive among bigger banks and their relatively large holds of cash.
Loyalty can be even trickier when consumer demand is well ahead of FI innovation — as is the case for credit unions, as documented by the Credit Union Innovation Playbook from PYMNTS. Consider this finding, a potential source of tension for CUs and customers seeking more from their FIs: Loyalty and rewards innovation tops members’ lists of innovation priorities, with 49.1 percent saying they want their CUs to focus on launching new loyalty and rewards features and products. Yet, only 29.4 percent of CUs actively invested in loyalty and rewards innovations during the past three years. In short, many CUs are not investing in the very area their members want most.
The Need to Compete
The best way to resolve that gap was the subject of a recent PYMNTS discussion between Karen Webster and Denise Stevens, senior vice president of product delivery and innovation at PSCU, a credit union service organization that serves 1,500 U.S. CUs. The two of them not only dug deep into that research, but also contemplated what loyalty means for credit unions and their members as a new decade looms.
Credit unions, no matter how unfunded they might be relative to the bigger banks, cannot afford to just sit back and hope the old ways work when it comes to loyalty and rewards. “They really do have to compete,” Stevens said.
Not only do bigger banks tend to offer more robust and personalized loyalty programs than the CU industry, but consumers have become increasingly trained to expect loyalty and rewards programs that speak to their specific needs and wants. “Most of the purchases they make, most of the cards they choose, have loyalty rewards attached to them,” Stevens told Webster. “The customer at this point is kind of expecting that.”
Credit unions — along with most FIs — also have something else at stake when it comes to loyalty and rewards programs: branding. But bigger banks also have an advantage there, of course, as their marketing gives them presence in more locations than credit unions. “As we move to more digital in payments,” Stevens noted, “there is a decrease in brand awareness.”
That’s because as fewer people physically pull their payment cards from purses and wallets, there is less chance for those consumers to see the credit card’s logo on those cards — that is, a lack of reinforcement when it comes to existence of the specific financial institution. As more financial and payment activities move to the smartphone — where speed is among the golden ideals — those logos tend to flash by in an instant, Stevens said.
“Credit unions have to look for other ways to keep brand top of wallet,” she said. “For me, loyalty is a solution to that.”
Easier said than done, right?
Yes — very much so.
But the key to crafting a robust CU loyalty program is to think about the whole customer experience — another ideal guiding a great deal of digital payments and commerce. It’s not just about points that can be redeemed for, say, travel — it’s about making sure the entire booking experience is pleasant and memorable for all the right reasons, not for being filled with friction. And one key to ensuring that is to seek out good loyalty and rewards partners, Stevens said. Both the CU and its partners need to stay focused on what the members of a specific credit union want when it comes to loyalty and rewards programs — traits that can be found, in large part, via smart analysis of consumer data and broader loyalty trends.
“Every experience should be designed around what (members) really want,” Stevens noted. That means, for instance, crafting the most enticing action offers for those members. Increasingly, that also means enabling members to redeem loyalty rewards at the point of sale, another growing trend in the wider world of commerce and payments.
But even a sophisticated loyalty program is not enough for credit unions. Security stands as a top concern as well. The PYMNTS research found that 80 percent of loyalty-focused CUs also invest in anti-fraud protection. Those protections, as Stevens told it, reflect the ongoing movement of fraud to loyalty programs — not only do all those points and other rewards attract thieves, but consumers might not know they’ve been robbed for up to 60 days under some common CU fraud monitoring systems. “We did tons of proactive measures to monitor (such fraud),” Stevens said.
Yes, doing all that takes significant money and time. And big banks will always have an advantage in both areas. But the calculation for better loyalty programs is clear, according to Stevens: “The revenue far outweighs the costs of (loyalty) redemptions or the cost of the programs.”