Can cash incentives help credit unions recruit new members?

With competition for new members as fierce as ever, one credit union turned to perhaps the most basic incentive of all – cash.

First Financial Federal Credit Union in Sparks, Md., ran a one-month promotion last fall in which each new member received a $50 deposit and the opportunity to earn up to $100 more for choosing certain products.

In addition, First Financial donated $50 to charity on behalf of the new member. The credit union donated $19,350 to various charities in October as part of the promotion, said Stephanie Peltzer, chief marketing officer for the $1.2 billion-asset institution.

Peltzer declined to provide specific data on new members added through the marketing strategy because, “the value of the campaign is about more than one-to-one new member attribution,” she said. “There’s also the likelihood that the campaign continued to bring in new members after the fact, which wouldn’t be accurately captured in the campaign period numbers.”

But she added that the credit union received a “very favorable response” and that it allowed First Financial to keep pace with the new account activity it had experienced prior to the pandemic.

“October 2020 was one of our best membership growth months of the year outside of our usual peak growth periods of August and September,” she said. The credit union plans to launch a new member referral rewards program in the second quarter that will provide cash incentive to existing members who refer new members.

First Financial’s push to boost membership comes as membership growth continues to slow across the industry. Membership overall rose by just 3.2% last year and data from CUNA Mutual Group forecasts slower growth still this year. For its part, First Financial lost members last year after a few years of gains.

Cash incentives can be an effective marketing tool to convert someone from a prospect to becoming a new member, said Anne Legg, founder of THRIVE, a data education and consulting firm. But she said the challenges lies in building engagement beyond just getting people in the door.

“Many times the financial incentive is granted for simply opening an account and not tied to engagement,” said Legg. “So a new member may open the account with the savings account, open the checking account, have the incentive money depositing, wait for the amount of time the account is required to stay open and then transfer the money back to their financial institution.”

Those kinds of losses can be costly for a credit union. On average, said Legg, it takes ten times more effort to acquire a new member than it does to get business from an existing member.

Additionally, putting qualifying rules in place with cash incentives – such as requiring a checking account or a loan that must be opened and used in a specific amount of time – can be difficult for a credit union to track and maintain, she said. First Financial required all new accounts be open through at least the end of 2020 in order to receive qualifying rewards.

While cash-based membership recruitment worked for First Financial, not all credit union marketers are on board with that strategy, and many said there are plenty of effective ways to grow market share without handing out cash.

“We’ve offered incentives to open a checking account, but not to open a membership,” said Louise Nestor, director of marketing at Connex Credit Union in North Haven, Conn.

The $766 million-asset credit union has offered cash-reward incentives when someone opens and uses a new checking account for a few years. Nestor said such a strategy is not uncommon in the marketplace today.

Connex has targeted members in the towns and surrounding communities of its eight branches. The credit union also includes indirect auto customers in those campaigns, because credit unions traditionally struggle to engage those customers in other products and services, Nestor said.

Those bonus amounts have usually been $200, but this year Connex increased it to $300. The rewards are given when qualifications are met and there is a direct deposit for two consecutive months, she said.

“We have seen a very good response to our offer. Interestingly, typically less than half qualify for the reward and almost all continue to use the checking account and grow low-cost deposits six to 12 months later,” she said. “And there is negligible loss of accounts.”

Five Star Credit Union in Dothan, Ala. has taken a slightly different tack on the same basic marketing idea. For the last three years, the $557 million-asset institution has offered new members a chance to win $250 once they opened a checking account. Those drawings took place every six weeks, and 12 new members were selected each time.

“We have 17 branches so we wanted to make sure that the new members had a good opportunity to win,” said Mike Bridges, vice president of marketing and communications. “It is important to show our members through social media that people were actually winning the money on a regular basis.”

Another important aspect for Five Star was to not tie too many restrictions to the $250. Bridges said many new members come to Five Star because they were turned down for financial services elsewhere. By offering 12 chances to win each time the promotion comes up, he said, the credit union has showed a commitment to helping new members without making them jump through too many hoops.

Despite those past successes, Five Star stopped the program for 2021, Bridges said, because the $250 did not seem to be a driving force with membership growth, which was 7% last year.

“We are seeing good growth because the members get a checking account and a debit card. We give our members an opportunity where many other financial institutions look to see if they are profitable first,” he said.

Bridges suggested cash incentives can be especially helpful for credit unions struggling to grow their membership, but they have to be managed properly to ensure that member stays engaged.

“If you’re giving every new member or customer a cash incentive, you still have to retain them and make sure they aren’t just doing what needs to be done to get the money and then move on,” he said. “We run every product we offer through the lens of our membership and is this something that will help them. That will fuel your growth more than a cash incentive.”