Now the test for credit unions will be graded on a human scale: How well can credit unions listen to their members, provide rewards members want, and engage members in using the rewards system both by earning points and redeeming them, according to Gates, CEO of Azigo Inc., a loyalty technology company.

Credit cards started becoming part of credit union offerings in the 1980s, and have grown slowly and steadily. The Federal Reserve reported April 7 that credit unions held $52.3 billion in credit card debt in February – a record 5.5% of the nation's total.

About 60% of credit unions offer credit cards, and together they had 18.7 million credit card lines outstanding as of Dec. 31, according to Callahan & Associates, a Washington-based credit union research and consulting firm.

Credit union members ended the year with average balances of $2,838, up $56 from December 2015 and the largest annual increase since September 2010, Callahan reported.

Credit cards have been slowly becoming a bigger part of the Racine, Wis.-based Educators Credit Union ($1.7 billion in assets, 146,050 members).

They accounted for 5% of total loans and were held by 25% of members in 2002, when Jodi Darga began working there. In 2013, when she became card services manager, credit cards had inched up to 7% of loans and were held by 26% of members. At the end of last year, the margins had increased to 8% of loans and 28% of members.

Educators members hold their cards an average of seven years. They held 40,802 cards on Dec. 31, about 8% more than a year earlier. Their cumulative balance rose 4% to $101.2 million at year's end, while their average balances fell 3% to $2,480.

“We've had consistent growth,” Darga said. “We do well getting new members and retaining the older cardholders.”

Educators started a points program about 12 years ago. Darga said the program has been revised periodically using feedback from focus groups “to be sure we're offering what our members want and to keep our members loyal to our program.”

Recent focus groups have delivered a clear message: “Our members want cash – all ages, all types,” she said.

Members said they want to continue to have the options offered by Educators. These include using their points for in-house discounts on interest rates and closing costs. Members can also use their points for gift cards and travel. “But our biggest redemption for our members is our cash-back option,” she said.

Educators members earn one point for each dollar they spend on their credit cards and for every $2 they spend on their debit cards. The credit union rewards members with $50 cash when they redeem 7,500 points. Those points are worth less than a penny, or $0.67 per point. Cardholders can get slightly more by saving up to redeem 64,500 points. They get $500, or $0.78 per point.

The appeal of cash is its simplicity, she said. “They want it easy. They don't want to be earning points, and have to request to redeem them.”

Alliant Credit Union is responding to similar messages. In April, the Chicago-based credit union added a new card, the Visa Signature Credit Card, which provides a cash-back discount on purchases. The card carries an annual fee of $59 starting in the second year, and charges 10.74% and up, depending on credit qualifications.

For members to receive the Visa Signature Credit Card, they generally must have household income over $100,000 and a credit score over 700. Alliant ($9.5 billion in assets, 345,193 members), a legacy of United Airlines employees, has a more prosperous membership base than most credit unions, so nearly a third of its members qualify, Michelle Goeppner, Alliant's senior manager of credit product strategy, said.

In Alliant's market research, half of the individuals in its study group were members who fit the demographic, and half were prospective members.

“We heard loud and clear that cash was king,” Goeppner said. “It was overwhelming: They wanted true cash back, they didn't want a cap on their earnings, didn't want to have to think about categories or tiers. They wanted it simple and straightforward. That's how we built it.”

Until recent years, credit union members left about 65% of their reward points unredeemed, according to Gates, the rewards consultant.

That “breakage” might seem to be an added bonus for the credit union. But what it means is that a credit union has an underutilized program that it designed, built and deployed to encourage behaviors to provide a net benefit both for the credit union and its members; the return on that investment is watered down.

“Marketers realized that if people aren't using the points, the points aren't driving behaviors,” Gates said. “Getting people to redeem actually engages them more, and the ROI goes up even though the costs of the program are going up as well.”

Credit unions that have marketed their cards well, including explaining to members how to redeem points, have reduced breakage to a normal level of about 20% to 25%, Gates said.

Issuers now are working to drive up engagement by making it easier for cardholders to earn and redeem points. Ideally, Gates said, a member would be able to earn and use points in the same transaction: “That's sort of the Holy Grail for loyalty programs.”

“People who earn a gift card realize the value of the gift card and begin thinking about how to earn more of them,” Gates said. “It's a virtuous cycle.”

Issuers are also drilling deeper into the massive flow of data from their cardholders to personalize their offers and rewards.

Issuers increasingly work with retailers to offer in-store rewards that are added to a customer's card points. “A customer who is mulling whether to go to Target or Wal-Mart will go to Target because they know their card will earn more points there,” he noted.

Brands, such as makers of athletic shoes, can advertise to cardholders that they can get $10 off at Acme Shoes if they use their credit union card.

“It's going to be very successful, because, ultimately, the brands have more margin to give than the retailers,” Gates said. “Effectively, they're just using advertising dollars that they give to the retailers.”

And credit unions are starting to realize they have advantages that the big banks don't: They can be more agile by offering deals to promote not only locally-owned businesses, but also community events and any other beneficial opportunity.

“Members of a credit union are very loyal,” Gates added. “They're rooting for the credit union. They want to use their credit and debit cards.”