REDWOOD SHORES, Calif. – The $1.2 billion Provident Credit Union has found that if it makes a concerted effort to work its credit card program, that program will yield more of the results it wants to see. That's one of Provident's conclusions after watching its card balances increase by $1.8 million just over 90 days into a balance transfer program, according to David Green, Provident's assistant vice president for card services. "We had tried a number of different direct mailings," Green said, "and just found the returns from those had been shrinking steadily. We were casting around for a different way of giving our card program a much needed boost." Twenty-five thousand of Provident's 88,000 members have the credit union's card, giving it a card penetration of 28%, which is pretty healthy for a credit union these days. But Green reported that the portfolio had been shrinking as the credit union had focused on other product lines, like mortgages, where it had had a lot of success. When it came back to managing the card portfolio, Green explained, the credit union sensed that it needed to do something other than direct mail, an approach had yielded less than 2% the last time the credit union had tried it. Green acknowledged that, compared to the industry's average overall the direct mail response had not been bad, but he said the credit union wanted to see a more robust return. "The sense we had was that the direct mail channel was just too full," Green said. "In my own mailbox I get two offers a week that I just tear up. Our offers were just getting drowned out." Instead, using two products provided by the card cooperative PSCU Financial Services, Provident turned to two new approaches. First, it began to actively compare its card programs to that of other major card issuers whose offers were often in the employees' mail and, second, instead of using direct mail it adopted an approach of working through its employees and using an incentive program to do so. At first, Green reported, there were some concerns over both approaches. Some in the credit union were concerned that Provident was about to "go negative" in its marketing and others were concerned that an employee incentive program might unduly skew member service. "There were some concerns from our marketing department about whether we were about to embark on something like negative advertising," Green said, "but we countered that it wasn't negative advertising if we just told the truth." The credit union began comparing its own card program with the card offers that many were seeing in their mail, focusing in particular on the battery of fees and card terms that many consumer groups have attacked as being particularly bad for cardholders. For example, Green explained, Provident's card program lets a cardholder have two months of significantly late payments before it puts any punitive finance rate into place and, even then, if the cardholder has six months without late payments the credit union will back off its punitive rate. "The goal was to make our employees aware of how good our program really is," Green said "and to give them an incentive to let our cardholders hear their enthusiasm." Provident insulated members from the possibility that some of its member service employees might inappropriately steer card offers toward members who couldn't really use them by prescreening the members who were eligible for the offers. Only members with the needed payment history and credit scores were offered the card promotion, Green reported. Under the incentive program employees were paid $10 for each application, $10 for each approved application and $5 if the account transfers a balance. Cardholders were offered a chance to transfer the balance at 6.9%, a rate which would stay in place until the balance expires. The results were better than Provident expected, Green reported. In the first quarter of 2004, a quarter which historically saw the card portfolio shrink, the credit union added the $1.8 million in balances transferred, as well 700 new card accounts and had upgraded 508 card accounts. And the growth had cost the credit union $24,815 in employee incentives, about the same amount that the last direct mail effort had cost for a much smaller yield. Do Employee Incentive Programs Really Work? Ernie Hudson, chief administrative officer for PSCU Financial Services, said that while there are no specific studies which document how employee incentive programs work in the card area, there was ample reason to suppose that well-planned incentive programs could have similar results for other credit unions. Hudson pointed out that there is plenty of evidence that cardholders respond to incentives to use their cards, pointing to PSCU's CU Rewards program and other card reward programs. "The key is to have a program that offers very specific metrics." Hudson said, meaning that a program should have very specific goals. In Provident's case Hudson pointed to the rewards being offered for very distinct events like an application being filed, approved, and a balance transferred. He also acknowledged that there was a risk that member services employees could start working more for the incentive than for the member, but he added that member service education and pre-screening could help counter that risk. Credit unions have good card products that offer their members real value at a very good price, Hudson said. "Incentive programs help pump up employees to carry that message," he added. As for Provident, Green said the credit union had begun to plan how to carry the credit union's marketing effort past the end of the balance transfer offer at the end of 2004. Green said Provident had also begun studying how it might use a similar approach to tackle a different problem, the number of credit union cardholders who had the card but who underused it. "Our next goal is to get some of these folks more active," Green said. -

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