Convenience Checks, Credit Cards Boost Spokane Teachers' Bottom Line

SPOKANE, Wash. – Convenience checks are proving extremely convenient not only for members of Spokane Teachers Credit Union, but for the financial institution as well. While members can now take advantage of a zero percent interest rate for six months – using the checks to consolidate balances or to make purchases – the credit union is reaping the benefits with a 764% return on its investment. The convenience check campaign, coupled with a Visa credit card promotion last fall, resulted in nearly a 14% increase – more than $5 million – in Spokane Teacher’s credit card balances. The promotion vaulted the portfolio to nearly $35 million. Overall average growth for credit card portfolios for federally insured credit unions for the same period was just .8%, according to the NCUA. Doreen Kelsey, market research manager at Spokane Teacher’s in eastern Washington, said an aggressive marketing campaign begun in 2003 to boost existing cardholder balances has proven to be a major success for the credit union. The credit card program alone accounts for 34% of Spokane Teacher’s net income, she reported. The credit union also has managed to far outdistance the major card issuers in terms of response rate while keeping losses extremely low. “We have so many more advantages than they do,” Kelsey said. “Our response rate is four times their response rate. Our losses are a fraction of their losses. We have the relationship with member and the opportunity to cross sell from the branches. “The only disadvantages that we saw were we weren’t large enough to have multiple offers in the field at the same time,” she added. “We have to experiment a little more gradually with offers and see which ones the members like the best.” The experimentation prompted STCU to switch from a 2002 balance transfer rebate promotion to convenience checks with a low interest rate in 2003. The rebate program offered members 2% back on budget transfers, up to a maximum of $200. The convenience check offer that replaced that promotion initially came with a 1.9% interest rate for three months. Those convenience checks were mailed to targeted households in March, May and August. Kelsey reported the first promo check mailing received a “tremendous” 4% response. “And when we tracked those balances through the end of the year, we had 98 percent balance retention,” she said. “We picked up just over $500,000 in balances from that first campaign.” Similar responses were reported for the two subsequent mailings. In October, the credit union rolled out a revised convenience check program in response to member requests. This one offered zero percent interest for six months. Like the other mailings, that promotion went to targeted households. It was timed to coincide with the fall credit card campaign. “What that allowed us to do was to focus first on balance increases and second on new account acquisitions,” Kelsey said. “I think that’s key to success.” The convenience check campaign alone resulted in a 7.6% response rate with users nearly doubling their balances, Kelsey said. “We’re very selective in whom we target,” she said of the convenience check offer. “We want to make sure we have the best chance of getting a return on our marketing investment.” That meant mailings only went to members who had at least $1,000 available credit. They also had to have at least 25% of their credit limit available to them. Those who didn’t receive a mailing were “convenience users” who typically carried no balances. “They probably wouldn’t use the checks anyway,” Kelsey said, adding that households with high deposit balances were eliminated for the same reason. Two events prompted the credit union to embark on efforts to increase its credit card balances. The first was when, due to a card conversion project in 2001, it skipped its traditional fall credit card promotion. The result was virtually no growth in card balances that year. The following year, when the campaign was reinstituted, card balances grew 10% during a four month period and 4% for the year. The second event was when the credit union was approached about selling its portfolio. At the time, it was given dire warnings about credit unions losing credit card balances. “The picture they paint you is, you might as well sell because it’s inevitable that you’re going to continue to lose volume,” Kelsey recalled. “A lot of those claims didn’t necessarily ring true. We decided that if we made it a priority, we could certainly overcome those odds. “I think our idea was if the major card issuers can acquire all of these balances and remain profitable – last year they had their most profitable year ever – then we can do that,” she said. To accomplish that goal, Kelsey said the credit union had to be willing to invest in a marketing campaign. It also realized that the convenience check offer could smooth out the year-round ups and downs of the credit card portfolio. “The main thing is we have to be willing to invest the money to make the money,” she said. “I think that is the single reason why card portfolios may not be growing. If you don’t invest the money to get the a return on investment, you’re just not going to grow.” Kelsey said the marketing costs for the four convenience check mailings the credit union did in 2003 totaled $16,768. Taking into account the 1.9% or zero percent interest finance charges, “we still had a 764% return on investment,” she said. The fall campaign, which cost $28,000, resulted in a 939% return on investment, she said. That also takes into account the impact of the zero percent interest rate. “When we look at the card portfolio overall, and we track that very carefully, our return on assets for just the card portfolio is consistently over 8%,” Kelsey said. Convenience checks with no interest for six months are being offered on a quarterly basis by Spokane Teacher’s again this year. A fall credit card campaign, this time also offering pre-approved applications, is also planned. -