Shifts toward digital payments, pay-later options and colorful customizations are shaking up credit union card offerings.
When you look at what credit unions should offer to attract and hold their credit card customers, it seems less is more.
That’s “-less” as in contactless, card-less, and interest-less. All those options have taken off during the pandemic and are projected to keep growing rapidly. Credit unions need to make sure their suite of cards matches these trends.
But at the same time, more is more. Credit unions are offering more types of affinity cards—cards branded with the name or logo of an organization that receives a portion of the money spent using the card—as well as more options on card design, including metal, more rewards and possibly more currencies, including cryptocurrencies. One thing industry experts agree on is that there is a lot to consider when contemplating your card offerings, and if you don’t have staff dedicated to the effort, you should probably get outside advice or risk being left behind.
Top of Wallet, Top of Mind
The decisions you make are important, because your card in a member’s wallet is one of your best branding vehicles—especially as branch visits continue to decline and transactions move digital. Payments represent 80% of a consumer’s interaction with their financial provider and set the tone for that relationship, research shows.
“We very much want to have our plastic in our members’ hands, because it’s the way they most regularly interact with our brand,” says CUES member Tansley Stearns, chief people and strategy officer at $3.5 billion Canvas Credit Union, based in Lone Tree, Colorado.
Just before the pandemic hit, Canvas CU ran a Mastercard contest aimed at increasing use of its debit card by offering members a chance to win cash weekly, monthly and in a grand prize. That program helped increase the use of its vibrant orange Canvas-branded cards, Stearns says. “You definitely do not miss our debit card if you’ve got it in your wallet.”
That’s the sign of a successful card, suggests Guy DiMaggio, SVP/general manager of secure card sustainability solutions at CPI Card Group, Littleton, Colorado, which designs and manufactures cards. Bright, bold colors grab attention, and some financial institutions ensure the edges and outer sections of their cards are eye-catching so they stand out in a crowded wallet or purse.
“What’s going to make a consumer take out the card for that specific credit union versus a card that they have with a different institution?” he asks.
Besides appealing design, consumers these days want to know their card is eco-friendly, with younger generations particularly worried about the amount of new plastic generated in card production, DiMaggio says.
These cards can be slightly more expensive to produce, but DiMaggio notes many millennials say they’re willing to pay a bit extra for this feature. He recommends that credit unions at least offer eco-friendly cards as an option, even if they aren’t planning to switch all their cards to this stock.
“There is a good feeling, because the consumer and the credit union are collectively doing something good for the environment,” DiMaggio says. “We’re going to continue to see focus on providing cardholders with products that appeal both to their interests and their values.”
The third factor that DiMaggio identifies as crucial in card offerings is enabling dual interface payments, or contactless. A shift in that direction was underway pre-COVID, but it has now become the mainstream option.
Stearns says that in early June, Canvas CU introduced a new Rams+ card designed to build on the credit union’s growing relationship with Colorado State University and its Rams mascot and sports teams. Three years ago, the credit union entered into an agreement to put its name on the university’s stadium. The agreement set the stage to grow deep relationships across the university, including having a branch on campus and being able to connect with students, faculty, alumni and staff.
Stearns notes that her closest brand tie is with her alma mater, the University of Michigan, and she’s hoping Canvas CU can build on CSU’s similar connection with its communities.
The ability to match your cards and your members depends on how well you known them, says Larry Pruss, senior vice president at CUESolutions provider Strategic Resource Management. Some members will be more interested in environmental issues, while others may want to support Black Lives Matter or LGBTQ+ issues.
One example of the latter is Mastercard’s True Name initiative, launched in 2019, which allows cardholders to have their preferred name on their card, not necessarily their legal name. BMO Harris and Citibank were the first banks to take advantage of this card option. This June, Mastercard announced it was expanding its initiative to support transgender and non-binary communities by offering it through fintech Global Payments.
Cheryl Guerin, EVP/marketing and communications in North America for Mastercard, said the program became easier to implement in recent years as card technology has changed, so that having a name and signature on a card is no longer necessary.
“The name isn’t a secure element, so as long as the issuer collects the preferred name during an acquisition process, or as an offering to their existing customers, the change is in the presentment layer, not the processing,” Guerin says. “Ideally, [the issuer] would change the customer service as well, so that you’re greeted and treated with your chosen name. A simple change can make such a difference.”
For at least one credit union, it’s a change that was made years ago. CUES member Linda Bodie, CEO of $45 million Element Federal Credit Union in Charleston, West Virginia, says her credit union has offered this option for more than 20 years.
“Our applications ask for their legal name as well as their preferred name for their card,” Bodie notes. Last year, Element FCU decided to brand the program as Honestly Me and promote it with videos and advertising. Several additional members have already taken advantage of the newly branded card.
Dealing With Disruptors
One of the biggest disruptors in the credit card sector over the past year has been the rise of “buy now, pay later” programs, such as those offered by Affirm, Klarna, PayPal and Afterpay. Perhaps the best-known example of these programs is the relationship between Affirm and Peleton that allows consumers to shop online and buy a bike or treadmill worth $2,000 and up for zero down, zero APR financing and zero hidden fees, the ads say.
These offerings have spread far beyond the trendy fitness area: You can use the apps to pay for everything from jewelry to underwear at retailers from Bed, Bath & Beyond to Foot Locker. The initial success was with younger shoppers, but the trend has been spreading and is expected to almost double by 2024 to 4% of global e-commerce, according to a 2021 Global Payments Report by Worldpay from CUES Supplier member FIS, Jacksonville, Florida.
The big challenge for credit unions is that these payment apps grab customers at the point of sale and cut them out of the payment completely. But retailers like these payment options, because experience shows that shoppers tend to spend more when they can pay later.
“Credit unions need to be able to be in there at the point of purchase as well,” says Tom Church-Adams, SVP/pay products at CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, California. “They need to be part of a credit union member's ability to buy that product.”
“CU Payments Outlook”, prepared by CO-OP Financial Services based on research by EY, reported that many credit union members have relationships with payment fintechs and are using their services such as mobile wallets and P2P, instead of those available from credit unions.
Church-Adams says that CO-OP Financial Services and other processors are developing products that will allow credit unions to compete in the buy now, pay later area. The offering CO-OP is developing will have benefits for credit union members and credit unions.
“Rather than putting a massive balance on their credit card with a high rate that members are going to have to figure out how to pay back, this solution essentially says, ‘I’m going to enable you to purchase an item now using our tool and pay that off in increments and not add that to your overall debt on your credit card.’”
For credit unions, the value is that members using buy now, pay later are less likely to fall behind in payments, research shows. “The credit union will be able to manage the risk of the portfolio much better,” he suggests.
Church-Adams says the product CO-OP Financial Services is building, which will be available in early 2022, will operate the way an American Express option called Pay It Plan It does today. A member will be able to log into their credit card account, look at their charges, select a particular purchase and put it into a payment plan that divides it into equal interest-free payments.
“This product will fit into the cultural purpose of a credit union,” he says. “It aligns perfectly, because essentially their goal is to enable that member to have the lifestyle they want with the financial tools that make that life accessible. It also puts the controls in place, so that the member does not get into financial difficulty and the credit union is able to lend in a way so that it doesn’t get into difficulty managing that portfolio.”
Taking Control of the Future
Last February, CUESolutions provider PSCU, a credit union service organization based in St. Petersburg, Florida, announced its plans to offer a buy now, pay later program that will let credit unions offer this convenient option to members.
Jeremiah Lotz, managing VP/digital & data at PSCU, says development work is continuing and the product will be available later this year.
“Consumers are looking for control and convenience of managing their finances,” Lotz notes. In response to this, the goal for credit unions is to offer that flexibility while building on their trusted financial relationship.
Through the buy now, pay later tool, credit unions will be able to tell eligible members that when they look at future purchases, they have the option to turn one into an installment plan. “It gives control and transparency to consumers,” he says.
“The data tells us that members who use this type of transaction ultimately spend about 35% more,” Lotz says.
In the past, financial institutions competed on interest rates or rewards to make their card a consumer’s primary card, but the field has changed, Lotz says.
“Now, as consumers, we have high expectations around convenience through digital capabilities. Beyond just self-service, how can I really take control of my card and my finances?”
Looking at the next five years and beyond, Pruss of SRM is worried about the future of credit unions and community banks as payments continue to change. “There are probably more threats than there are opportunities,” he warns. The dangers come from cryptocurrencies and decentralized financial options that could cut out the need for intermediaries like credit unions.
“You need to be playing offense, not defense, and looking at ways of gaining back the business that you’re losing to the fintechs and to the cryptocurrency industry—because if you don’t, five years from now, you’re not going to be in business,” he says.
Pruss urges credit unions to work with partners on new payment solutions, such as the buy now, pay later plans, and to delve into cryptocurrencies and decentralized finance to find ways to take part in that revolution, when regulators allow. Some credit unions are already exploring crypto options, he notes.
There is little doubt that consumers will be interested. In late April, Gemini, a platform that allows customers to buy, sell, store and earn cryptocurrencies like bitcoin, announced its plans with Mastercard to create a credit card program that will offer cryptocurrency rewards. Within three weeks, 250,000 people had flooded the waiting list, hoping to be first in line when the cards are issued this summer. First in line, and no doubt first in wallet. cues icon
Art Chamberlain is a writer based in Campbellford, Ontario, who has written about the credit union sector for more than a decade and has been a member for more than 30 years.