Even though affinity card issuing may have a become a more difficult regulatory and economic challenge, some credit unions have begun to find payments success by launching affinity card rewards programs, credit union card executives report.
Just as affinity card issuing allows banks and some credit unions to issue cards in conjunction with a local group or association and market the cards based on that association, affinity card rewards enable credit unions to offer reward point redemption options that are tied to a given locale or community. Or they allow cardholders to use their points and generate points to help a local charity or other nonprofit. Each functions, the executives explained, as a way of personalizing and characterizing a financial product that could be seen as a financial commodity, a card much like any other financial institutions' card, and make it more appealing to members.
Credit unions using the programs say they significantly increase usage and interchange income from both debit and credit card portfolios as well as often carry a lower cost of rewards because area merchants will frequently fund at least part of the effort.
Steve VanFleet, CEO of RewardsNOW, a loyalty marketing firm that is a leader in the developing the new kind of rewards program, explained that the new card programs please consumers and cardholders because they allow them to support local merchants or towns or charities while local retailers like the programs because it enables them to know that the promotion dollars spent in rewards program are more targeted and more likely to generate increased sales and income.
“We consider local rewards programs a win for everybody,” VanFleet said. “Both consumers and retailers find additional value and meaning in local rewards, they just provide more meaningful added value.”
One credit union that has found success with the new approach has been the 86,000-member $620 million Michigan First Credit Union, headquartered in Lathrup Village, Mich. a suburb of Detroit.
Michigan First consolidated its previous three card programs (two Visa platforms and a legacy MasterCard program), none of which had rewards, into a new program it dubbed the Experience Michigan First Rewards Visa card, a credit card with a rewards program aimed at spurring economic activity at local retailers and at local travel destinations.
In addition to the usual rewards options like travel miles or gift cards to national retailers, the new card offers rewards that allows members to choose from Michigan-made products or popular Michigan destinations when they redeem rewards points.
The results have been electric. Michigan First reported that it had opened 1,000 new accounts from the new card.
“In light of the economic times and the pride we’re sharing in Michigan’s recovery, we thought it would be great to offer a program that somehow gave back to the local economy,” said Linda Douglas, vice president of marketing at Michigan First.
Michigan First reported that three months after launching their program in April, the new card saw an increase of nearly $1 million in new balances in 90 days.
“We’re shooting for a total of $5 million in new balances by year’s end,” said Douglas.
Michael Poulos, CEO of Michigan First gave some of the credit for the card's success to the strong desire among many Michigan residents to help improve the state's financial and economic base.
“Michigan had been hit so badly economically that I think there was a push among a lot of people to try to do what they could to help build things up,” he explained. He also said the credit union had provided a number of designs for the new card that would illustrate some noted state landmark or attraction. The card designs helped people choose the new cards, he added.
Meanwhile, the 58,000-member $721 million Texas Trust Credit Union has found significant success with a debit card rewards program that allows cardholders to drive income to local school districts. The credit union distributed $110,000 to the schools, proceeds from funds generated by its members using the Spirit Debit Rewards cards between July 2011 and August 2012.
Any member of the credit union can sign up for one of the card by selecting the school or school district that will receive the funds. The credit union then gives the member the card with a design that represents the chosen school or district. Thereafter, each card holder use generates 15 cents per use for the designated school, about half of the credit union's average debit interchange of 32 cents.
“I know that many people hear 15 cents and think it’s not very much, but it does add up,” said Amber Danford, vice president of marketing for the credit union. “We have been thrilled at the way these schools have taken to the Spirit Debit Card.”
The credit union, which has a community field of membership that encompasses three Dallas area counties, already had a relationship with some of the schools and school districts, Danford explained. The credit union already had student branches in two of the schools, for example.
"Texas Trust is an invaluable community partner. The credit union is continuously working with us to find creative ways to support our students, faculty and schools,” said Bob Morrison, superintendent of Mansfield Independent School District, one of the four that participated in the program. "The Spirit Debit Reward Card has been a great tool to help us raise money for the classroom, without requiring any extra effort or work."
Danford said the cards have been popular with students, teachers, administrators, parents and alumni, and there has been competition among the districts for which one can earn the highest amount of income per card.
She also reported that all the activity around the cards, which carry designs produced by students at the schools, has meant that debit cards affiliated with the program now account for 14% of the credit union's overall debit card portfolio. “I am always running into people who want to know where they can get one of those Spirit cards,” she said.