"Credit unions must recognize that cardholders are a lot savvier than they used to be and expect more from their rewards programs," Lehman wrote in the white paper. "In fact, cardholders are much quicker than banks and credit unions to understand what they want from their financial institutions. Consumers will change financial institutions if they are presented with a rewards program that has a stronger value proposition that better matches their needs."

Rewards programs attached to credit and debit cards have become such a common and integral part of consumer culture that Lehman said credit unions risk standing out in a negative way with consumers if they don't have one or are mismanaging one.

Lehman urged that credit unions that might have previously considered implementing a rewards program but decided against it to revisit the topic now. He pointed out that there have been significant changes to how rewards programs are structured and managed in ways that provide greater flexibility to both consumers and credit unions that increase their impact and reduce their costs.

For example, credit unions can increase the point availability for different seasonal purchases. such as back to school purchases in the late summer or purchases of winter sports equipment in January and February. Or higher point values can be used to favor travel or travel to certain destinations, he explained. Or credit unions can counter Bank of America's 1-2-3 promotion by offering additional points for fuel purchases, grocery purchases or eating out.

"Points can be used to help drive all sorts of things," Lehman said. "One thousand points can increase card activation or initial card use or balance transfers."  And the days when points can be redeemed for only merchandise or miles or cash have passed, he added. Now rewards programs can be set up to allow members to redeem points for lower interest rates on loans or other services as well as to reward other sorts of behaviors, such as making loan payments on time or using a website to make payments rather than the branch or checks.

These sorts of relationship rewards, like all rewards programs, are fairly inexpensive to implement, but can take additional time that other rewards programs do not.

"Single-line product positioning can be fairly simple and even be covered in a one-page checklist," said Robert Legters, senior vice president of loyalty services for FIS. "A relationship rewards checklist, however, is much more extensive. Leaders must sit down and determine the right model and how it pertains to the overall strategy. A value must be assigned to every product or service. Less than 1% of our clients offer relationship programs because of the time and effort required."

Lehman and Legters also discussed the rise of merchant-funded rewards programs for debit cards and the ways these kinds of programs can help credit unions fill a gap in the marketplace that many larger banks have abandoned in the face of increased costs from the Durbin Amendment regulations.

"It's a win-win-win situation for the member-merchant-credit union," said Legters. "Consumers use their debit or credit cards to accumulate points for merchandise or to generate cash back. Merchant-funded rewards are designed to yield higher rewards for shopping activities at select participating retailers because the retailers are funding the additional rewards earnings, alleviating the burden of expense on the credit union." 

Legters added it's critical to maintain a balance of national, local, online, and in-store options that members can use to earn additional points or cash back. Consumers want variety and will change programs if there isn't enough selection.

"We've done comparisons in the industry," he noted. "It's important to feature national merchant offers both in-store and online–they are absolutely essential to drive program performance."

Lehman acknowledged that there had been a trend among some financial institutions, including some credit unions, to add a fee to cards that carry rewards programs as a way of mitigating rewards costs. Lehman said he opposed such fees as they tended to blur the lines between credit unions and bank card issuers. He especially opposed them if the credit union applying the fee did not have a policy in place that could help influence a member to adopt an even more valuable behavior.

For example, a credit union which might charge a $35.00 annual fee for a rewards card could offer to waive the fee if the member used the card at least three times per month or agreed to start having his salary deposited with the credit union electronically. In each example, Lehman pointed out, the credit union would trade the $35 for a member behavior that was potentially more valuable, making the CU's card top-of-wallet or starting to have the member's salary deposited directly.