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OFFERING A REWARDING EXPERIENCE WITH AFFLUENT CARDS

OFFERING A REWARDING EXPERIENCE WITH AFFLUENT CARDS
Posted: Jun 22, 2018
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Credit Unions Can Offer Members Affluent Cards and Increase Their Bottom Line

Wealthy Americans love credit card rewards. These cardholders can also be the most profitable for a credit union issuer – but only with the right card product.

The battle to acquire cardholders is being won by issuers who use rewards as ammunition. Both Visa and Mastercard report card growth in the low double digits, with the lion’s share of that coming from reward cards. It’s no secret that Americans love their reward cards. According to Brian Riley of The Payments Journal, more households have credit card rewards than have 401k plans. And the rewards continue to grow. In 2008, the average credit card bonus offer was 16,050 points. Today, the average offer is 40,556 points.

There are several credit card products, each one suited to a different type of cardholder. There are cards that offer balance transfer promotions, to encourage revolvers (cardholders who carry a balance) to become their cardholder. There are secured cards, for thin/no file members who want to establish a credit history. And then there are cards for transactors – cardholders who want to maximize spend on credit cards to maximize rewards. It is this demographic that affluent cards are made for. And this demographic is highly desirable, with an average household income greater than $100,000, they also account for 20% of the population, but 60% of the total card spend in the U.S. These cardholders seek the best rewards for minimal or no annual fee. Credit unions can profit from these members by offering affluent cards.

 

What are affluent cards?

Affluent cards, sometimes called signature cards or world cards, typically have higher credit limits, starting at $5,000 and up, and almost always offer a whole host of card benefits. The most highly demanded card benefits are:

·       Access to exclusive events

·       Travel concierge service

·       Merchant offers

·       Higher transaction limits

·       24/7 customer service

·       Year-end account summaries

·       Auto rental collision damage waiver

·       Emergency card replacement or cash disbursement

 

From an issuer perspective, these services cost more to provide. Typically, an issuer purchases these services as a package, on a per cardholder basis. This is in addition to any signing bonus (such as $200 after spending $3000 in the first three months), plus marketing and advertising costs. It is for this reason that an issuer entering into the affluent card market for the first time should understand that year 1 will result in a net loss.

Despite the initial loss, 20% of cardholders are affluent, contributing 60% of the spend than non-affluent card cardholders. Increase in monthly spend over traditional accounts is 3.6X, meaning the average “ticket” (transaction dollar amount) is between $63 and $80 and the number of transactions is 7-20 per month. Combining these two factors yields a monthly average spend of between $440 and $1600 for affluent cards, with the resulting interchange from this spend being the biggest reason for issuers to offer this type of card product alongside other cards. Not only does the issuer get interchange on greater cardholder spend, but for many merchant category codes, the interchange rate per transaction is higher than that for other card types, to compensate the issuer for the additional card benefits. Even after considering the costs for the issuer to provide the rich card benefits listed above and rewards, the average net income for affluent cards ranges from $32 to $193 per card account per month. That makes this card type not only desirable by cardholders but profitable for issuers.

 

Perspective from a credit union: Maps CU World Rewards

At the recently help immersion18, Trellance’s annual conference, the benefit of affluent cards was the topic of one of the most popular break-through sessions. Toni Silbernagel, the VP of Consumer Lending at Maps Credit Union, a credit union that launched their affluent card program called World Rewards in the last two years, gave her perspective on this card product. Toni shared that the reason the credit union first wanted to offer affluent cards was to stand apart, to have a product to offer to members who are frequent travelers, and to attract a whole new demographic of cardholders they were not able to reach with the existing card products. Creating awareness of the new card was important. Starting the marketing campaign ahead of time, on the CU’s website, through emails and branch collateral, and following up with continued messaging, contributed to the success the credit union had in ramping up the product to profitability. “We are happy with the performance of the cards. It enabled us to attract big spenders that we couldn’t reach otherwise”, said Toni. She added the warning that the program cannot run on auto-pilot. It needs to be re-emphasized, with member facing staff reminded and incented to spread the message, along with new and compelling promotions to keep awareness high.

If your credit union is interested in offering affluent cards, or just wants to better understand the ROI and mechanics of affluent cards, please get in touch with us at info@trellance.com.

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Dave Chojnacki

Dave ChojnackiDave Chojnacki

Dave has more than 10 years of relationship management experience. He currently serves as Director of Consulting Services at Trellance. Prior to Trellance, Dave served as Director of Client Relations with FIS Retail Payments.

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