By Ray Birch
HARRISBURG, Penn.—The credit union with the fourth-largest credit card portfolio in the nation has finally decided that a rewards card is needed to compete today—after earlier avoiding it “like the plague.”
Pennsylvania State Employees CU in January launched the Founder’s Card, which at first paid 1.5% cash back—now the deal is 2% when members take a checking account with direct deposit.
CUToday.info has reported extensively on the credit cards rewards battle that is raging as the major card issuers sink big dollars into programs to build the portfolio. PSECU CEO Greg Smith said the heavy competition can no longer be ignored, and that it will take an attractive offer to keep cardholders in the fold and reel in new ones.
“We avoided offering a rewards card like the plague for many years,” said Smith. “But I think now you have to have this in your toolkit. It is just so competitive out there.”
Time To Spend
As CUToday.info reported, payments expert Tim Kolk advised CUs last year that they needed to spend on rewards programs or risk losing cards. He was concerned credit unions were not opening their purse strings to compete.
Smith said PSECU has been very successful with its Founder’s Card, which attracted 8,000 new cards in the first four months, with members spending $17 million in that period. When the credit union added the 2% option, the $5-billion CU received 800 applications in the first week. The variable rate card, tied to prime and not risk-priced, charges 13.15% APR.
For years, PSECU had done well with its low, fixed-rate Visa, which charges 9.9% APR for all FICO scores, and is still offered by the credit union. The fact that it is a low-rate card with no risk-pricing had appealed to members over the years that wanted a good, straightforward deal, said Smith. The credit union’s 2.9% balance transfer offer, too, has helped bulk up the portfolio, which now totals $670 million in balances.
“We went that way for a very long time, and again I stood strongly against offering a rewards card,” said Smith. “We even used to tell members and the community to use their rewards cards to get the points, and when the balances become large, transfer them over to our low-rate card. But we had started to see portfolio growth flatten and then decline. For years we grew the portfolio at 8%-10% annually, but last year that slowed to 5%-6%. So we reevaluated our position.”
Helping In Other Areas
Smith said PSECU is optimistic that the rewards card will help the credit union in other business areas, especially on college campuses—including alumni associations—and in building deeper relationship with indirect auto loan members.
“We have credit union programs on 30 college campuses and one of the challenges we face is keeping that relationship with students when they graduate and move out of state. The students leave and don’t think they can take their credit union relationship with them, but they can,” explained Smith, whose credit union reaches its members largely through remote channels. “We think the Founder’s Card could be the glue that keeps these relationships going.”
That same thinking can be applied to indirect auto, Smith said.
“Every credit union complains that they can’t really penetrate the indirect relationship. People go to the dealer to buy a car, not get a new banking relationship,” said Smith. “If you can’t get that borrower to take out another service or two, when they pay off the loan that account usually closes. With the Founder’s Card we think we can get more indirect members to take our plastic, and stay with the credit union when the loan is paid off. Maybe they even take out their next car loan with us.”
The Founder’s Card offers another advantage, asserted Smith—it can help protect members from a growing type of card fraud. As CUToday.info reported, crooks are now zeroing in on rewards points, stealing them as some third-party vendors don’t carefully mind this store and cardholders infrequently check their points balances.
“The crooks go in and steal the points and cardholders don’t even know they have been victimized until maybe a month later when they check their rewards balances and see it’s down to zero,” said Smith.
Internally Managed Program
The Founder’s Card program is managed internally by PSECU, so rewards points balances show up on members’ home banking page.
“If their points bank is compromised, they should see that as soon as they log into their account on their mobile device or PC,” said Smith.
Smith admitted that earlier in the year when he learned, through a report on CUToday.info, that Inspirus CU in Seattle was paying 2% cash back, he thought the CU had made a bad move.
“I said that was crazy. Now I have eaten my words,” said Smith, who said the credit card competition facing CUs now should be a wake-up call. “I think you have to do this or you can lose cardholders and the portfolio won’t grow. We are fortunate at PSECU that we can afford this type of program and I have no concerns about its sustainability.”