Credit unions which process card transactions with The Members Group, a payments CUSO affiliated with the Iowa Credit Union League, will soon be able to start offering their cardholders merchant-funded rewards.
With merchant-funded rewards, merchants carry the cost burden often associated with rewards redemption. Merchants benefit from increased sales as a result of the program, creating what TMG’s Matt Flynn, director of client relations, calls a win-win for financial institutions and retailers.
The trickle-down effect of Durbin’s cap on debt interchange and increased competition for the coveted “top of wallet” position among issuers is creating a need for a holistic set of tools to help community financial institutions get the most out of their portfolios, Flynn said.
“Merchant-funded rewards get issuers where they need to be competitively, yet affordably,” he said.
Because merchants fund points in exchange for marketing exposure, issuers can extend the TMG merchant-funded program to all active cardholders or to specifically targeted segments as their individual strategies warrant, TMG said.
Although an enhancement to TMG’s existing rewards offering, merchant-funded rewards can also act as a stand-alone incentive, particularly on debit card programs, the company said.
According to First Data, merchant-funded rewards have been known to increase debit spending by as much as 8% when added to an existing debit portfolio.
“TMG’s merchant-funded option makes perfect business sense,” said Matt Levandowski, executive vice president for the $317 million Heritage Family Credit Union in Rutland, Vt. “It takes a tool once considered cost-prohibitive by many smaller issuers and makes it a viable option for increasing loyalty, driving revenue and building merchant-community relationships.”