Credit Unions Seeking Edge in Credit Card Market Underestimate Selling Power

When it comes to credit cards, credit unions can’t compete with the rewards programs of deep-pocketed national banks. They can, however, gain an edge by promoting lower rates and higher approval odds, particularly with younger members and those reeling from the economic fallout of COVID-19.

Credit unions have long been known for offering low annual percentage rates on credit cards. With the pandemic-induced massive unemployment and wage loss, those rates have dropped even lower, following the Federal Reserve’s cut in interest rates.

But are prospective members getting the message?

Credit unions who fail to cater messages to these demographic groups, promoting low rates, as well as higher approval odds, are potentially missing a major opportunity to grow their member base. They need to communicate their strengths or they could lose out on significant market share.

Credit union rates generally range from 7% to 13%. BECU based in Tukwila, Wash., for example, offers a 6.9% APR for its Visa card. Bank rates, on the other hand, typically don’t drop below 13% or14% for national brand credit cards and sometimes go as high as the low 30s.

And although credit unions sometimes offer higher rewards incentives to reward brand loyalty – such as with the 2% cash back on all purchases the McLean, Va.-based PenFed Credit Union offers its Honors Advanced Members on the Power Cash Rewards Visa Signature Card – they still can’t compete with the incentives offered by banks with higher assets and merchant partnerships.

The largest national credit union, Navy Federal Credit Union ($128.5 billion, Vienna, Va.), currently offers only 1.5% cash back on all purchases on its cashRewards Credit Card. But high-end bank cards can offer 3-4% on an accelerated earning structure.

Banks have been much better about marketing to young people as well as to a wider audience, including those impacted by the pandemic. They’ve waived late payments or fees, for instance, or changed their reward earning structures to allow more points for streaming services such as Netflix or food delivery services such as Grubhub.

Credit unions, by comparison, have not crafted similar messages. They have not, for the most part, targeted prospective members looking for ways to increase their access to cash or ease payment burdens rather than score deals on movies and food delivery – even though their rates have continued to drop.

Credit unions may not be able to offer the same incentives as banks, but they do have the flexibility to be lenient with members when it comes to such things as interest rates or late payment fees. They could promote those benefits to young people trying to build a credit history or anyone who has struggled to pay off debt due to the pandemic or another financial setback.

This is where the credit union’s message of personalized customer service and its reputation for rewarding brand loyalty are likely to resonate. The younger generation or those with a poor credit score may not be aware credit unions offer better approval odds and those facing economic hardship for the first time may not be aware of their comparatively low rates. They can market their history of listening to members and observing their needs in a much more personalized setting.

These messages can be delivered through email campaigns, authenticated site promotions, or even dedicated product pages. Whether the message resonates, however, will also depend on the quality of the digital presentation, as consumers tend to trust content with user-friendly web designs.

Text shouldn’t feel cluttered, and banner images and iconography should be clearly displayed. Important information should be emphasized with either large or bolded text. And secondary navigation, such as expandable sections, should be included to help organize and break down content for users.

National banks remain the biggest threat to credit unions and they are particularly advanced on the digital front. But credit unions shouldn’t underestimate their own selling power when it comes to their established history of prioritizing personalized member service and their ability to respond to the significant changes in their members’ lives.

Gina DeCorla is a Senior Analyst for the Boston-based Informa Financial Intelligence.