The new product race: Rewards, incentives, and relationship-based pricing

You may not want to hear it, but credit unions face a new race. Your typical free checking and modest, interest checking products are tired, boring, and about as compelling as cold oatmeal. There, I said it.

Simply put, the product landscape is transforming. Your older members (Boomers and Gen-X) have emerged from the last 8 years with battle scars and open eyes. The younger generations (Millennials and Gen-Z) were essentially forged in the financial fires that burned all around us. Everyone thinks differently now. Everyone.

So, why are you still offering the same old products? With all of the options available from traditional and non-traditional players, your members are asking a simple but significant question: What is their return on loyalty?

The new product race has begun

As is often the case, the “big guys” have already left the gate at full sprint. They understand that the only way to prevent attrition, attract new consumers, and grow wallet-share is to incorporate relationship-based pricing programs for their deposit accounts.

In other words, they are systematically converting their deposit accounts into revenue-generating machines while rewarding their consumers for loyalty and incenting them towards more profitable behaviors. Have you seen Bank of America’s new Premier Rewards program or Wells Fargo’s fee-based checking accounts that waive maintenance fees based on debit card usage? What about PNC’s online tool that recommends a product based on certain criteria, including incentives selected by the consumer?

None of these financial institutions offer the classic “free checking with no minimum balance requirements.” Instead, they offer rewards, discounts, interest rate boosts, and no maintenance fees in exchange for having multiple products, keeping higher aggregate balances, using low-cost channels, and providing increased interchange revenue. That almost sounds like (dare I say it?) a win-win relationship.

Many credit unions took some early steps in the race by offering high-interest checking accounts (with the promise of low, cost-of-funds discount margins) or participated in a network that rewards members for shopping at certain retailers that participate.

These credit unions should be commended for recognizing the early changes in member expectations and for trying something new. Unfortunately, they are now finding that these cookie-cutter programs lack flexibility and are not nimble enough to navigate around their competition.

In fact, the same third party programs have been deployed into literally hundreds of community institutions with the exact same branding. That is exactly the opposite of differentiation. Credit unions using these programs may be in the race, but they are finding themselves hindered by the potato sack.

“From that day on, if I was going somewhere, I was running!” – Forrest Gump

If credit unions want to be in this race, and really go for it, they are going to need to invest in some new running shoes. In an industry where we pride ourselves in high-touch, superior levels of service, you must commit the resources necessary to create automated, yet flexible, behavior-based pricing programs that actually resonate with your members. You must be willing and able to analyze these programs, understand their true cost and potential revenue based on measurable criteria, and determine your success using your own distinctive and clearly defined ROI model.

At this point, it’s time to retool and start, again. And that’s where the fun begins.

If you have a program designed to attract the youth and you find that it gained traction with all market segments then congratulations…you failed.

Ok, not really. You actually succeeded in learning something new about your entire membership base and that’s invaluable. However, your original goal to reach younger members is still out there and you need the flexibility to try a new approach.

If you want to challenge your competition in the new race you must be enthusiastic about changing current programs and creating new ones. As a credit union, you should be energized by the opportunity to differentiate yourself with new promotional campaigns that are truly unique for your membership.

In this race, only the credit unions that work to empower themselves with real-time, speed-to-market strategies will have any chance of competing.

Remember, in our industry, the goal isn’t to win the race. The goal is to stay in it.