Meet the Big Spenders

September 2017: Vol 40 No 9
by Stephanie Schwenn Sebring

Why catering to the mass-affluent segment can help you serve all your members.

woman pays with credit card

Marketing to the wealthy doesn’t have to be a breach of a CU’s people-helping-people philosophy. In fact, it could very well be a way to do more for all your members. Targeting the affluent has its own unique strategy, and a premium credit card can serve as an effective conduit to reaching this influential market.

Who Are the Mass Affluent?

As reported by PYMNTS.com, Mastercard defines “mass-affluent” consumers as those who earn $100,000-plus in individual income or households earning at least $350,000. Visa has a $100,000 floor, with the mass-affluent cardholder earning as much as $150,000.

Tim Kolk, president of TRK Advisors, Peterborough, N.H., says this group has little revolving or auto debt, often a mortgage but maybe not. Many also have significant assets, often distributed throughout a banking relationship and investment accounts. “While some CUs may not choose to pursue this segment for cultural, resource or strategic reasons, there is a substantial opportunity,” he says. “But this is a catered-to segment, and they expect products they consider of high value. And for credit cards, that means high-value rewards.”

But what if you don’t have an affluent membership?

“Think again, because that’s probably not the case,” offers Kenton Potterton, VP/solutions and consulting at CUES Supplier member PSCU, St. Petersburg, Fla. “When seeking affluent segments, consider not just your core members, but their spouses, extended family and the broader reaches of your membership.” True, he adds, that the mass affluent are not “mass” in number, but most CUs have pockets of wealthy members. These may be some of your best members, those who have larger mortgages or business loans, or are using your CU as their primary financial institution.

They’re the High Spenders

This group is one of the fastest-growing, most influential credit card segments in the United States, comprised of those who spend massive amounts via a premium card, an average of $18,000 annually—but virtually never carry a balance. “More striking is that growth for all credit card spend in the U.S. is accelerating towards premium card usage,” says Potterton. “While CUs aren’t at national levels yet, premium cards do comprise 21 percent of all CU spend for PSCU member-owners.”

Additionally, Alex Johnson, director at Mercator Advisory Group’s Credit Advisory Service and author of the report, Premium Credit Cards: How to Hit a Small, Moving Target, states, “The biggest area of growth, in terms of card spend, is occurring in the lowest tier of the mass-affluent segment, and this is motivating issuers to invest in the features and rewards of cards targeted at that segment.”

Premium cards also provide higher transactional income and a greater return on assets. For example, Vantiv, Dallas, notes that premium cardholders have a 15 percent higher transactional volume, and on average, generate 10 percent higher net margin per account (tinyurl.com/ycb7vff4).

“Expect a premium card and other credit cards to generate a 4 percent ROA compared to 1 percent ROA from your other assets,” adds Potterton. “Plus, there are consequences of not entering the market: You risk losing the potential for higher interchange income (12 to 17 additional basis points per transaction), and full participation and penetration of your portfolio.”

The added revenue can also be leveraged to better serve all members or as a springboard to offering new technology or other top-notch benefits. And don’t underestimate this value, reiterates Potterton. “A typical credit union’s credit card portfolio encompasses just 5 percent of total assets, but it will, however, generate between 25 and 30 percent of overall net income.”

And if you decide not to serve this segment, rest assured someone else will. “The mass affluent is one of the most highly sought-after segments,” adds Kelly Mendenhall, VP/product management at CUES Supplier member CO-OP Financial Services, Rancho Cucamonga, Calif. “While these members don’t carry balances, they are spend-heavy when they find a card they like.” Along with income potential, Mendenhall notes these key benefits:

  • diversification in your card portfolio;
  • cross-selling opportunities for other profitable, upscale products;
  • accelerated spending, so your card becomes top-of-wallet; and,
  • acquiring cardholders who are less likely to default on their balances.

Doug Leighton, head of community accounts at CUES Supplier member Visa Inc.,  San Francisco, concurs that affluent members represent an attractive demographic for CUs—not to mention the large national players. He stresses that national players are mailing or emailing your affluent members all the time.

“But when you can provide competitive payment products and services, it keeps the national players from gaining a foothold in this profitable segment, because credit unions often know their members much better than their competitors,” he explains. “Plus, credit and debit cards are a way for you to build your brand as members use these products often and will recognize the utility your credit union is providing.”

How to Succeed?

First, develop a value proposition that acknowledges and treats this group differently, advises Kolk. And it may come down to how much better you’re willing to treat them. “Observe how Bank of America differentiates with bonus points tied to relationship status,” says Kolk, “or SunTrust Bank extends cash back value based on deposit relationships.”

The affluent also want rewards that cater to their discretionary buying power. “Typically, you’ll see a much higher spend in travel and entertainment, so a two- to three-points per-dollar reward in these categories should ensure your card stays top of wallet,” says Potterton.

In general terms, people in this segment want more personal attention and convenience. They’re active on their mobile phones and tablets and want apps for quick and easy access to their card info. They also want to manage their cards’ functionality remotely, whether it’s through alerts, card controls or other features.

“And they don’t care about rate because they don’t pay interest on balances,” says Mendenhall. “But they do care about their reputation and credit score. So, offering peace of mind, safety and security features are vital to this group. They want assurance that you’re doing everything you can to avert risk, especially since these affluent cardholders are more vulnerable to fraudsters, simply because of the large volume of transactions going through their cards.”

This segment won’t carry a variety of cards. Instead, these cardholders depend on only a few cards for highly targeted purposes, Mendenhall says. And they’re remarkably savvy with how they select and use their cards to accumulate points. They leverage card usage to earn maximum points for their preferred perks.

Enticements for this group must be indisputably lucrative and wide-ranging. Consider attracting cardholders with an appealing intro offer, perhaps a bundle of points right away. Potterton suggests making the offer so enticing the cardholder wants to choose your card—with an offer as rich as possible to get them on the books. Maybe it’s 10,000 or 20,000 rewards points upon signing. Maybe it’s leveraging merchant-specific offers based on the cardholder’s preferences or transaction history.

Or consider something out of the ordinary, such as the “Amazon idea” from PSCU’s consulting arm Advisors Plus. Just about everyone uses Amazon, elaborates Pollerton. Why not offer an intro reward of 10 points per dollar of Amazon transactions for a specified period, like 60 days? The assumption is the member will enter your card into their Amazon account to gain the surplus points­ and keep it there.

Undeniably, the affluent want access to premium offers, stresses Pollerton. He notes that some PSCU member-owners have incorporated point redemptions for amenities like Lincoln Town Car service or private jet hours, offers seen only by premium cardholders.

“And because they have larger amounts of disposable income, consider lucrative points for the arts, dining out or high-end shopping,” adds Mendenhall. “Issuers are also moving towards cash-back rewards for purchases, notably Capital One and American Express.”

Member-Centric Messages

Craft messages that stress reward value, simplicity and redemption options. Try emphasizing a mix of high-value elements, points or cash rewards to attract. “This group also responds to unique, highly personalized offers like enhanced travel or interesting experiences,” says Kolk. “See how the Marriott Rewards® Card (by Chase) leverages its perks with special events for premier cardholders or how American Express provides access to hard-to-get concert events.” (Read more.)

“Acknowledge the affluent according to how they see themselves,” reiterates Kolk.

More than for any other demographic, the message must center on the value the cardholder receives. “It seems mercenary, but it is what it is and to try to convince a consumer they should care about something they don’t (like rates and fees) is unproductive,” he adds.

Data can also help you identify and speak to affluent members in meaningful ways. Mendenhall suggests using data to find and make personal contacts with affluent members—perhaps offering a premium card as a follow up to another high-end product. Try a handwritten note or a follow-up phone call to this group.

“With the affluent especially, the personal experience goes a long way.” And rather than taking the “shotgun” approach—scattering premium card offers to the entire membership hoping a few will stick—use your data to find the high spend, high income, high credit score members already in your portfolio. Then convert them to your premium card automatically.

Keep in mind affluent members are likely to receive new product solicitations on a weekly basis from competitors, says Leighton. “But data gives you an advantage. You know your members much better than the competition. And you possess insight including transaction data and financial information.”

Defining Success

Leighton recommends tracking monthly spend and number of transactions.

“Affluent members should spend more and transact more frequently than less-affluent members,” he says. “And don’t be concerned if your average transaction amount goes down; that’s a good thing. It means members are using your card frequently and for smaller-ticket purchases. This builds brand loyalty. Also, monitor interchange income, as this is a key component to affluent card success. A successful (premium card) program should be your highest ROA product, so watch that as well.

Ultimately, you want to encourage card swipes, says Mendenhall. “The more swipes, the more profitable the account, and the more benefit your members will gain from your card. A vital rewards structure and intimate approach to marketing will increase usage, but affluent members must be utterly convinced you understand them. They must believe you’re doing something on their behalf, not only on the rewards side but also with service, security and convenience.”

Stephanie Schwenn Sebring established and managed the marketing departments for three CUs before launching her business. As owner of Fab Prose & Professional Writing, she assists CUs, industry suppliers and any company wanting great content and a clear brand voice. Follow her on Twitter @fabprose.