A St8ment On Patelco’s Gr8 R8s

Patelco CU announced a new savings rate promotion: 8% APY on balances up to $1000 for their members up to the age of 21.

The CU blogosphere was all atwitter with talk of how this will teach today’s youth about thrift and build loyal, long-term members. I’m skeptical, however. I can’t help but wonder:

How much is this really going to bring in? From members really under 21, that is. When I saw the promo, I started filling out account application forms for my kids — all 150 of them. The site says “new money not required.” Sweet.

How much money Patelco is leaving on the table? Granted, there might not be a lot of 7-, 14-, or 21-year olds with $10,000 to put into an account. But, as the site indicates, the APY on a balance of $10k is a hair over 1.5%. You can do a lot better than that at ING Direct. For members with more than $1k, I’d bet that the extra dough goes into some other FI’s oven.

How much money will be there on January 2, 2009? That’s the date the accounts transfer over to a regular share account. What puzzles me is this: What does Patelco think it can do to demonstrate to savings account holders why they should stay with the CU? Of all types of accounts, savings accounts probably drive the least amount of interaction. While I seriously doubt that this would happen, it could backfire.

What impact do promotions like these have on consumers? My take: They train customers to shop on price and to be more price-sensitive. Since so many CUs (and other FIs, for that matter) claim that they don’t want to — and can’t — compete on price, then I have to wonder if this is such a great idea.

Does this really promote thrift? If Patelco wants to promote thrift, then why doesn’t it reward its under-21 members by applying that 8% rate for up to every $1000 they add to the account each month until the end of 2008?

What message does this send to members getting 0.80% on their money? (That’s not a typo). In addition to the Gr8 R8s promo, Patelco is offering 7% (2+ % points better than regular rates) on a 12-month CD to new members. The potential message: New members and 14-year olds are more important than other members, like baby boomers looking for objective advice on what to do with the pre-retirement money they have sitting in CU accounts.

It’s easy for me to play armchair quarterback and insinuate that Patelco hasn’t thought through these questions. I don’t mean to imply that. But other CUs, deciding whether or not to follow suit, should do so with serious consideration.

Sure, it could bring in some deposits in the short-term. But it could also send a message to current and prospective members that “we’re no different from the banks down the street.”

And it’s more than just a marketing promotion decision or product decision — it’s a strategic question. Do you really want to start competing with the likes of ING Direct and other online high-yield account providers on top of everyone else you’re competing with?

You don’t have to convince me of the need for FIs to attract young consumers (I wrote this three years ago). But CUs, in particular, should be — and, in many cases, are — trying the change the rules of the game. Not trying the beat the big guys at their game.

I’d love to discuss this further, but I’ve gotta run — I’ve got 147 more account applications to go fill out.

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7 thoughts on “A St8ment On Patelco’s Gr8 R8s

  1. Hey Ron,

    You make some great points with which I agree. However, let’s look at this promo through the eyes of a typical Patelco depositor — say a 64-year-old grandmother. Is she going to want to encourage her 18-year-old grandson to put some money into Patelco when she sees this rate? You bet she is! Is she going to feel bad that she herself isn’t getting that rate? Not really, because she wants the best for her grandson, and is thrilled that they are making it very compelling for him to get started with some good savings habits.

    If they were offering this rate to new customers without regard to age, then I think it would be mistake of enormous proportions.

    And I like your idea of improving this program by making the reward contingent on a monthly savings regimen.

    Oh, and BTW, the Patelco app says “new money not required,” right? Remember when I talked about the dangers of bankerspeak? “New money” is a bankerspeak term that ordinary people don’t use. From the customer’s perspective, new money is the latest paycheck he or she earned.

  2. Morriss: I don’t think “new money” is bankerspeak. It’s just Patelco’s way of saying that you can transfer from an existing account. Which, unlike the CD promotion, is current-member friendly.

  3. @Ron: Great points all around.

    @Morriss: Seriously? Financial talk with Grandma? Is this new strategy for reaching Gen Y? Forget social media, grandparent dialogue is what you really need to be focusing on if you really want reach the youth market! 😉

  4. @Ron – yes, absolutely “new money” is bankerspeak. A consumer would never say, “oh, I can take advantage of this offer without needing to use new money.” “New money” is bankerspeak for “money not already on deposit with the financial institution.”

    And btw, I completely agree that this rate promo is training people to be sensitive to rate… which is what most FIs claim not to want to do.

    @CU Skeptic – Srsly! I didn’t say that Patelco was going after youth via grandparents (though that’s not a bad idea). I am simply trying to put myself in the shoes of the typical loyal member with a large sum of money on deposit with the CU and imagine how they feel about the sky-high rate that they can’t get. If this great rate was aimed at gaining new members, I’d be ticked off! But since it’s aimed at my grandkids (in principle), I’m okay with it.

  5. How is Patelco marketing the Gr8 R8 Savings Account?

    After reading the comments here, I would be interested if Patelco is indeed communicating the message to current adult members – in hopes of opening new accounts with their kids/grandkids. Or, is Patelco reaching out to the youth directly?

    I would also be interested to know who the real target is within the under 21 age-group. Specifically, is it those under 18 or those between the ages of 18-21? In my mind, these two segments present some distinct challenges/opportunities which could really impact the success of this program.

  6. Ron – Great post! What made CUs great in the first place was their social purpose (people helping people).

    The paradigm that created us (lack of affordable credit) has changed, but there are a lot of opportunities out there to re-invigorate that people helping people philosophy.

    As it relates to young consumers, I think a campaign that appeals to their idealism would be more successful than running a short-term rate special.

  7. Pingback: What’s Stunting Credit Union Membership Growth? « Ron Shevlin’s Marketing Whims

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