Nine U.S. credit unions formed a credit union service organization to boost rewards for members who shop at local businesses.
The new Prizeout Partners CUSO, created to work with the Prizeout platform, enables credit unions to sell digital gift cards through their institution's online or mobile banking channel. Credit union members may receive an average bonus of 12% above the cash value of the card based on the results of a pilot program, the participants announced Tuesday.
The concept provides incremental revenue for credit unions and creates an incentive for credit union members and local businesses to engage with one another, said Amy Sink, CEO of Interra Credit Union in Goshen, Indiana, which is a founding member of the CUSO.
"For about a decade we've been looking for a product that benefits our members and our local businesses, and when we heard about this technology we realized it fit the bill not just for us, but other credit unions — especially during tougher economic times," Sink said.
Other founding members of the CUSO include Suncoast Credit Union, MSU Federal Credit Union, Patelco Credit Union, Stanford Federal Credit Union, Credit Human, Langley Federal Credit Union, University Credit Union and Collins Community Credit Union.
During a recent pilot, the $1.7 billion-asset Interra provided employees with $200 each to buy gift cards from local merchants in the rural Indiana region the credit union serves, through the credit union's mobile app.
"Employees picked gift cards at local merchants and in each case they were able to redeem merchandise above the dollar value of the card they bought, in some cases up to 25%," Sink said.
To participate, credit unions use an application programming interface to connect to Prizeout's digital gift card engine. Merchants fund the program by setting their own bonus levels using data from Prizeout's platform. Prizeout transfers the core value of the gift card to the merchant when a credit union sells a gift card.
When a customer redeems the gift card at a local store, Prizeout and the credit union share a percentage of the card's bonus value as revenue on each digital gift card sold, said David Metz, Prizeout's CEO.
Prizeout uses merchants' existing connections to Square and Clover as its primary way of linking local merchants to its platform. Merchants that don't use Square or Clover for payment acceptance can download the Prizeout app and use it to accept payments on their mobile phone, Metz said.
"Even the smallest, cash-based merchant can accept a digital gift card payment by taking a photo of the customer's digital gift card bar code within the Prizeout app," Metz said.
New York-based Prizeout, launched in 2019, has seen rapid expansion in the last three years offering digital gift cards as a merchant-funded alternative to paying out cash in gaming, payroll and finance use cases.
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"We believe this will truly help our local merchant community grow, and more members save more money," said Darlene Johnson, executive vice president and chief growth officer at Suncoast Credit Union, a $16 billion institution in Tampa, Florida, in a press release.
Payments industry participants have struggled to find convenient methods to operate merchant-funded rewards programs on the local level, said Heidi Leibenguth, managing partner at Crone Consulting.
"Small financial institutions typically don't have the personnel or resources to create or nurture these ecosystems, but there's a strong interest among today's consumers to support local businesses for such programs," she said.
To catch on, any local merchant-funded rewards program would need organic promotion, she believes.
"The goal would be a circle of word-of-mouth, spending and investing where the entire community benefits," Leibenguth said.
