How Pentagon Builds Credit Card Loyalty

Between common-interest affinity programs, low rates, and monthly cash back rewards, Pentagon has clearly put the member first in credit card lending.

The managers of the $590 million credit card portfolio at Pentagon Federal Credit Union ($7B in Alexandria, Va.) know how to grow and maintain a successful credit card portfolio in a socially-responsible way. Pentagon’s credit card portfolio leveragesthe same tenets all credit unions seek to uphold in the broader movement: cooperative spirit and service to the member.

We’re a company that looks towards the needs of the member, and Pentagon has built its credit card program based on this reputation, said Margaret Szeliga, vice president of brand and marketing at Pentagon.

Indeed, Pentagon managers have leveraged their trusted brand to grow its credit card lending into a national power. As the world’s 35th-largest card issuer, according to the January 2005 Nilson Report, Pentagon operates six different co-branded affinitycards as well as three standard low rate (9.99-12.9 percent) and no-annual fee gold and platinum cards.

Pentagon appeals to its large military-based membership and its members’ strong common interest through association cards with affiliations to the United States Military Academy, U.S. Coast Guard, U.S. Army Warrant Officers Association, and USO, amongother military service organizations.

The cards are not designed simply to be flashy at the point-of-sale. For example, with the USO card Pentagon contributes 10 percent of the net finance charges to fund troop morale and welfare activities of the USO. Members do not even need to be volunteersor members of the USO to carry the card; they can just be anyone that wants to support our troops overseas.

For more general-purpose members, Pentagon offers a no-annual fee Platinum card that offers monthly cash back of 1.25 percent. The program is not tiered based on levels of spending, like many other national issuers structure their programs.

One of the ways we differentiate our program from other offers out there is to pay cash back monthly, rather than hold onto it until the end of the year, Szeliga said.

Between low rates, no annual fees, generous rewards, and loyalty-inspired affinity programs, Pentagon has clearly put the member first. Shunning standard forms of credit card promotion, such as print advertising, Pentagon relies heavily on one-on-onecontact and positive word-of-mouth advertising for spreading the word about its program.

Financially, the strategy has paid off, as loans outstanding continue to rapidly exceed its peer group, and delinquencies remain deeply below industry averages (see graphs below).

Source: CU Analyzer, Callahan & Associates, Inc

Source: CU Analyzer, Callahan & Associates, Inc

April 26, 2016

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