Credit Unions Implement Rewards Programs to Increase Income

[Jun 2, 2008.]

Checking rewards programs from the Austin, TX based vendor BancVue are being used by approximately 100 different credit unions with very successful results. In these trying economic times, BancVue's checking rewards program are helping these credit unions keep financially afloat, despite lower yields and increased provisions against defaulted payments on loans.

How do the rewards programs help banks earn more money? The programs require a certain minimal amount of account transaction per month in order for customers to earn monetary rewards that work a lot like high-yielding delayed deposits (CD's). Credit unions spend some money on giving people rewards, but the make up for this in the money they gain from the interchange income generated by the higher volume of monthly account transactions.

Gabe Krajicek, the CEO of BancVue, explains the reason for his program's success. “It's hard [for credit unions] to get good loan yields because the net interest margin is squeezed so tightly,” he says. “But what we're really driving up is noninterest income.”

In other words, the rewards programs allow credit card unions to profit from customers' checking account activity, not from interest on loan payments. In this way the rewards programs help credit unions earn money without putting additional strain on customers already struggling to repay their loans in the midst of a nationwide credit crisis.

Two credit unions that have used BancVue's programs for more than a year have successful figures to show for it. Northern Federal Credit Union of Watertown, NY has garnered over $18 million since it first started using the program. Customers who opt to use the new reward checking accounts make 20 debit card transactions per month, as opposed to the 7 transactions per month made by customers using the ordinary free checking accounts. Meanwhile, Clearstar Financial Credit Union from Reno, NV reports interchange income ranging from $17,000 to $18,000 monthly as a result of the new rewards program.