ARLINGTON, Va. – Misperceptions about the relative risk and costs of so-called loyalty or benefits programs have prevented many credit unions that issue cards from adding them, said credit union card experts. But increasing competition from other credit card issuers has helped induce a growing number of institutions to offer the card usage enhancements. "The principal reason," more credit unions haven't added bonus programs to their cards, "is that credit unions are, on the whole, slow adopters of new programs," said Katie Slater, product manager for PSCU Financial Services (PFS). Traditionally, she said, "smaller credit unions have looked to the larger institutions to set the pace," and then come on board later. The problem is that the smaller credit unions are facing stiff competition in their card offerings and they don't have the time to delay innovating, she said. She also noted that, in many smaller credit unions, credit cards are considered merely another type of loan, to be administered by the credit union's already taxed loan staff that lacks the time and the resources needed to actively manage the programs. In response PFS, Card Services for Credit Unions (CSCU) and Certegy, which claims to process credit and debit card transactions for 4,000 credit unions, have rolled out new or improved analytical and loyalty programs designed to help credit unions understand the risks and benefits of adding a loyalty or bonus program on their cards. "Credit unions need to understand that card enhancement programs are not something all their cardholders are going to want equally," said Karen Fry, marketing director for CSCU. It is primarily the upper income, frequently traveling, heavy card users that are both going to be interested in a loyalty program and may be the most vulnerable to offers from other card issuers, she said. In response, CSCU advises credit unions generally to diversify their credit card offerings and reserve their loyalty or bonus program for those gold or platinum cards. The exception Fry made is for the so-called relationship loyalty or rewards programs that offer credit union card holders better rates on other credit union products or points as incentives for using other credit union products. A broader segment of credit union cardholders might want those programs, she noted. Rob Jordan, manager of enhancement services for PFS explained that a key to keeping a reward or loyalty program's cost under control was to structure the program in a way that keeps the cost per bonus point lower. Credit unions can do that by offering different rewards for different levels of card point accumulation, as well as by offering not just travel rewards programs but also merchandise. In general, because it can be purchased in larger lots, merchandise provides a less expensive reward benefit than do travel rewards like free airline tickets. Credit unions can also act to limit their longer-term liability for the card bonus program by limiting the amount of time the credit union members can hold onto their card bonus points, usually five years. Jordan said that although the misperceptions about card enhancements have been a problem he and other PFS staff have been busy explaining PFS' CURewards programs to its member credit unions, indicating that the misperceptions about the programs might be fading. Dennis Driscoll, vice president of loyalty services and enhancement programs for Certegy echoed Jordan's report of increasing interest in card loyalty programs. Driscoll reported that while a relatively modest 27% of CSCU's member credit unions have loyalty programs, another 27%, not necessarily made up of the same credit unions, have so-called package enhancements and another 4% offer a Platinum Preferred card with even more enhancements. All in all, Driscoll estimated that roughly 40% of Certegy processing credit unions offered some sort of card enhancement on at least some of their cards. Loyalty programs usually use a points system while package enhancements program focus on attaching services, like travel agent services, to certain cards free of charge to the card user, Driscoll explained. "But the big news is that while we have offered some sort of card enhancement program for 12 years, we have seen a 30% increase in credit unions using the program in the last year," Driscoll reported. "We have seen a dramatic rise in the number of credit unions interested in adding some sort of program to their cards," he said. Driscoll said that Certegy's program, ScoreCard, endeavors to help credit unions that are both fiscally responsible as well as appealing and compelling. "A lot of programs can be appealing, but relatively few can be really compelling," he said. Navy Federal has decided to offer a unique bonus system to its 773,300 credit cardholders (MasterCard and Visa) and 932,500 Visa Sharechek cardholders – a sweepstakes. In the "That's Entertainment" sweepstakes, Navy Federal members, who make a purchase with their Navy Federal Visa, MasterCard, or Visa Sharechek Card from August 1 through October 31, 2002, will have a chance to win a Home Theatre System, Digital Camcorders, or Microsoft Xbox Video Game Systems. Each time members use one of these cards they will be automatically entered in the sweepstakes' random drawing. "We hope to create some excitement and buzz among our membership and staff for these products, especially in terms of promoting credit and debit cards to members," said Tom Steele, Vice President Credit Card Division. "In addition to increasing card usage and promote card issuance." The credit unions said it plans to use special campaign promotions, in addition to monthly statement inserts, online banner ads and print ads to promote the sweepstakes. [email protected]