Independent Banker - January 2018 - 70

Nuts & Bolts
monthly fee per account to support
the administration of the program.
Huhndorf adds that promoting
the program is important. " Each
year, we determine a marketing plan,
develop a schedule of bonus points
opportunities and utilize statement
messages, as well as internal signage,
to draw awareness. "
Relationship benefits
Farmers State Bank automatically
rewards new customers with 5,000
bonus points if they activate and use
their cards within the first 30 days
of account opening. This encourages
card activation and " jump-starts their
point earnings, " says Huhndorf.
Examples of additional bonus point
promotions the bank has offered
include double points on all purchases
during a certain time period;
triple points on flower shop purchases
during the spring; and 5,000
points if customers spend $2,000
during the November and December
holiday season.
Farmers chose to offer its customers
travel points and merchandise/
gift cards but not cashback, Huhndorf
" This growth in sales
volume generates
interchange income,
which more than
offsets the ScoreCard
program costs. "
-BARBARA J. HUHNDORF,
FARMERS STATE BANK
says. Cashback is an automatic credit
back to every cardholder, or 100 percent
redemption.
" Many do not know, but the bank
is the one that foots the bill on all
redemptions, as well as the admin
costs to the processor, " she says.
" So by choosing travel or merchandise,
we pay for that redemption cost,
but only if the cardholder cashes in
their points. "
The bank also sets an expiration
date for points and discloses that date
on customers' credit card statements.
While that does trigger a surge of
redemptions close to expiration, it
keeps the bank's liability under control
as the program matures, Huhndorf
says. Farmers does not charge an
annual fee for consumer cards, but it
does charge an annual fee to business
customers that it waives if they spend
$5,000 per year.
Interchange income
The sales volume that Farmers' card
customers generate is growing year
on year, and Huhndorf attributes
that to the ScoreCard Rewards
program and the loyalty of the bank's
card customers.
" This growth in sales volume
generates interchange income, which
more than offsets the ScoreCard
program costs, " Huhndorf says. " Our
underwriting is fairly conservative,
and the quality of our portfolio
remains strong with very low delinquency
to outstandings. Customers
come to expect getting something
back from their card-that is just an
industry expectation. "
A community bank's decision to set
up its own card program or engage
a third-party vendor depends on the
bank's growth strategy and customer
base. It is not one-size-fits-all when
it comes to offering reward programs
on cards, says Tina Giorgio, president
and CEO of ICBA Bancard Inc.
" Customer preference drives the
decisions, " Giorgio says. " Banks need
to look at their target clients, strategy
and risk tolerance, and make a decision
that fits the need. "
TCM Bank in Tampa, Fla., owned
by ICBA Bancard, has 350,000
cardholders in its rewards program
for both consumers and small businesses,
says Damon Moorer, president
and chief executive. TCM Bank has
" multiple flavors of rewards to satisfy
varying cardholder desires. "
" For example, baby boomers who
are retired prefer a points program
70 ICBA Independent Banker January 2018
that allows them to get hotel stays and
travel, " Moorer explains. " Gen X and
millennials, on the other hand, tend to
prefer cashback. It's nice and simple,
and the cashback can be applied in a
multitude of different ways. "
Community banks can also offer
rewards to strengthen relationships,
such as a lower rate on a commercial
loan if a small-business customer
opens a card account, he says.
Banks can adjust the cost of a
rewards program by adjusting
the bonus points, but the value
proposition has to fit within the
P&L for that program, Moorer
says. This is easy to ascertain with
adjustments, as rewards programs
are one of the " highest forms of
measurable marketing. "
" Incremental transactions are
occurring, enabling the bank to know
exactly what the transaction is and
exactly what the return is, " he says.
Some of the higher-rewards programs
come with an annual fee in
order for the financial mechanisms
behind the scenes to work, but
Moorer says those customers expect
it. " For many affluent customers,
an annual fee comes along with a
prestige card offering. It's a status
play, " he says. " The entire loyalty
space is just that: providing greater
value to drive deeper engagement and
usage. How do we generate enough
perceived opportunity to generate
perceived incremental utilization? "
Katie Kuehner-Hebert is a writer
in California.
Independent Banker - January 2018

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