Turning Words Into Money Or Turning Money Into Air?

Credit unions are divided on whether member payouts for referrals achieve the maximum results.

Trust is hard to come by for many people especially when it comes to new or different relationships. So how do you get potential members to leave what they know for something they don’t? Many cooperatives look to member referral campaigns to overcome the natural skepticism and anxiety of new members. Some even offer cash incentives for recommendations from the people that potential members trust, such as friends and family.

If your friend tells you to do something, you’re going to be more likely to do it than if you see a billboard, says Gerard McGeever, chief marketing officer at Freedom Credit Union ($623.6M, Warminster, PA). Having a friend tell you we’re great, that’s the best exposure we’re going to get.

Freedom has boosted its membership growth through referral campaigns and sees incentives as one way to encourage members to bring in friends and acquaintances. However, not all credit union executives are in congress on the effectiveness of paid referral campaigns. For example, Alliance Credit Union ($364.1M, San Jose, CA) has tried various referral strategies, including offering a monetary incentive, but doesn’t find the return worth even the comparatively minimal investment.


  • Freedom Credit Union
  • HQ: Warminster, PA
  • Assets: $623.6M
  • Members: $623.6M
  • 12-MO Member Growth: 1.86%
  • 12-MO Member Growth: 8.93%
  • 12-MO Member Growth: 3.76%
  • ROA: 0.46%

The Freedom Story

With nearly 60,000 members, Freedom Credit Union isn’t small, yet its marketing department has still concentrated on increasing its membership in 2013. According to second quarter performance data available through Callahan Associates’ Peer-to-Peer analytics, Freedom posted a 12-month member growth rate of 1.86%. That’s higher than the 1.73% average for Pennsylvania credit unions but lags behind the 4.18% national average for credit unions with $500 million to $1 billion in assets.

Freedom conducts business in a competitive marketplace, and when McGeever came on as CMO in 2011, he wanted to see if the member referral campaigns the credit union had run in the past were truly effective. In July, the credit union launched a campaign that offers a monetary reward for referrals through the end of 2013.

I wanted to play out a theory and see if it is an effective use of funds, McGeever says. It turns out, it does greatly increase membership when you offer them an incentive to bring a friend.

During designated periods, Freedom pays $25 to both members who refer a friend or family member as well as to the new member. The credit union uses its website, newsletter, payroll inserts, posters, and handouts to inform members that the Refer a Member promotion is active.

The marketing team can gauge the effectiveness of the promotion through the coding system it uses to track how new members come to the credit union. In 2012, the credit union ran Refer a Member for most of the year. Approximately 62% of new members 1,027 of 1,649 joined the credit union as a result of the promotion. This year, in July alone, Refer a Member brought in 154 new members.

For Freedom, it’s all about finding the sweet spot where individuals are willing to go through the annoyance of switching financial institutions.

It’s a pain to switch your accounts, so there needs to be enough incentive to do it, McGeever says. It’s not just free checking. It’s not just convenient ATMs. There needs to be something immediate and measurable that assures the new member switching is worth the extra time.

It’s a pain to switch your accounts, so there needs to be enough incentive to do it. There needs to be something immediate and measurable that assures the new member switching is worth the extra time.
Gerard McGeever,
Chief Marketing Officer, Freedom Credit Union

As a group, referred members are a profitable demographic for Freedom. The total loan balance of accounts opened in the 2012 referral campaign is $5.7 million with an average of 2.68 services per household. The group also has a combined deposit balance of $11.2 million. Compared to previous campaigns, Refer-a-Member generates a solid return, especially for the larger employee groups in which the credit union has many active members.

A lot of [referrals] are coming from our bigger companies, he says. Although we are a community credit union, we have a couple of key employee groups like the school district of Philadelphia and a couple of large hospitals in the Philadelphia area.


  • Alliance Credit Union
  • HQ: San Jose, CA
  • Assets: $364.1M
  • Members: 39,460
  • 12-MO Member Growth: -0.88%
  • 12-MO Share Growth: 3.96%
  • 12-MO Loan Growth: -13.57%
  • ROA: -0.03%

The Alliance Story

Like Freedom, Alliance Credit Union has looked to referral campaigns to boost its membership. Unlike Freedom, Alliance hasn’t found the strategy to be an efficient use of resources.

We know 50-60% of our members say they are extremely likely to recommend our credit union to friends or family, but between what they say and what they do, there’s a bit of a disconnect, says Jim Delyea, senior vice president of marketing and retail delivery at Alliance. I don’t know that an incentive will mobilize them to act. If that conversation comes up naturally and their experience has been positive with the credit union, then they will probably make that recommendation.

For example, Alliance ran a loan referral campaign to commemorate its 60th anniversary. Whenever a referral resulted in a loan, the credit union gave $60 to both the member and the person they referred. Although the credit union promoted the referral payout in multiple channels for nearly a year, the campaign only brought in 30 applications. And according to Delyea, past member referral campaigns have yielded similar results.

We’ve had a promotion pretty much every year to try to find an incentive that will mobilize members, he says.

Referral campaigns depend on members talking about financial decisions with friends. For some, this is a difficult topic to broach no matter how much money is on the line.

My personal finances aren’t a topic of conversation at the neighborhood barbecue, Delyea says. I’ve learned people are generally very private about their financial needs. That’s why I believe we haven’t had great results from these campaigns even though our members say they are extremely likely to recommend us.

Instead of trying to force the conversation, Alliance is focusing its efforts on providing the best service it can to its members.

I just don’t know that credit unions can make that conversation happen by offering a special incentive or program, Delyea says.

Instead, we need to take care of the member in every experience so when the opportunity does come up, they will recommend us.

Although referral campaigns are relatively inexpensive when compared to other marketing alternatives, ROI is still an issue. So the credit union is working to expand its share of wallet with current members in lieu of trying to bring in new ones.

I’ve found it’s not worth the money or time, Delyea says. Your staff and members can only focus on so many messages, so a big referral campaign might actually take their focus off something that could yield better results.

Common Ground

Freedom and Alliance have had different experiences with referral campaigns, but both institutions agree the strategy can be useful for bringing in the children of current members.

In 2012, Freedom’s youth Refer a Member promotion brought in 503 new members. In addition to $25 for the referrer, Freedom gave $25 and a piggy bank to incoming individuals 14 or younger. Although Alliance doesn’t currently have a youth-oriented referral promotion, Delyea is intrigued by the idea.

I believe we’ll have a higher success rate mobilizing parents to get their kids into an account, he says. We should be encouraging parents to help their teens understand smart money management. It’s also a good way for the credit union to cultivate new members.

Whatever strategy a credit union uses to recruit new members, their efforts cannot end once the member is onboard. Instead, credit unions need to consistently prove their worth and cultivate their relationship with referred members. Otherwise, these individuals might once again jump ship in favor of an institution that lives up to its promises.

October 2, 2013

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