Merchant-Funded eGift Cards Help Credit Union Members Spend Smarter

As credit unions (CUs) seek ways to stay competitive in an increasingly diverse, crowded and complex financial sector, it’s creating some fascinating new possibilities for the organizations that service CUs — the credit union service organizations (CUSOs).

In the latest permutation of this concept, AdTech company Prizeout is at the heart of a newly formed CUSO called Prizeout Partners, which has attracted some of the most high-profile credit unions in the country.

As Prizeout CEO David Metz told PYMNTS, “The credit union space is unique compared to all of our other industries. They are by far the most collaborative industry I’ve ever been a part of. A lot of that collaboration comes together in a CUSO.”

Noting that CUs are in heated competition with multinational and super-regional banks, Metz said the rationale for forming Prizeout Partners is to provide new revenue streams and the ability to offer digital finance products and technological innovation to CUs and their members, while at the same time increasing the buying power of CU members through the core Prizeout digital gift card offering.

He said, “In this case, it’s also getting access to products in FinTech that maybe they would not normally have access to. These are sometimes reserved for bigger banks, but collectively, when CUs come together, they’re just as big as some of those bigger banks and can be competitive.”

Added Purchasing Power and ‘Preferred Economics’

When he began meeting with CUs in mid-2022, Metz was completely unfamiliar with the sector but intrigued by the CU business model, and charmed by the people he was meeting.

“Nine months ago, I had no idea what a CUSO was, and if you asked me to tell you what it stood for, I could take a thousand guesses and I wouldn’t know,” he said. “When I started talking to my first credit union, that led to the next and the next. It was kind of a domino effect.”

Those dominos led to the late February announcement of the formation of the Prizeout Partners CUSO, whose nine CU members are Suncoast Credit Union, Interra 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.

In that announcement, Amy Sink, CEO at Interra Credit Union, said, “We immediately saw the value in creating the CUSO for Prizeout. We believe in Prizeout’s technology and see it as a huge value-add for financial institutions in helping them grow, scale and provide more benefits for their members and communities. From an innovation perspective, it’s even more exciting because credit unions don’t typically don’t see a lot of the same innovation that bigger banks do — and this is built just for them.”

Asked about the benefits this new CUSO offers to member credit unions, Metz told PYMNTS that members of the CUSO get preferred economics on digital gift cards, meaning additional purchasing power.

“That is a benefit for them, and they’re getting economics that are more beneficial for them and their members,” he said.

He added, “Members are getting additional purchasing power on brands they’re already shopping with, based on our product. Credit unions are getting a rev share base of all the purchases that happen, and local brands are getting increased volume and revenue by participating, keeping business within the community.

In other words, CUs who sell Prizeout digital cards get a piece of the action on those transactions, based on the Prizeout value proposition where those buying a digital gift card card on the platform get an additional average of 12% shown, added on top of the amount spent, increasing purchasing power while driving more shoppers to local businesses.

“Then for us, we get a lot of credit unions in a short period of time. So, we get more credit union partners than we normally would have if we started by ourselves,” Metz added.

A Way to Beat Interchange

Calling it “a win-win-win,” Metz said CU members “are getting more purchasing power to the brands that they love, the credit unions are making additional revenue on non-interest income, and the businesses that bank with them and that are in their community are getting access to new customers. So, everyone walks away, hopefully, with a smile on their face.”

Part of the value proposition is that the non-interest income realized through the Prizeout partnership is positioned to counterbalance interchange fees CUs pay when using banking rails.

“Credit unions are constantly getting squeezed on non-interest income, otherwise known as interchange. With the rev share that we’re paying them, it’s allowing them to offset those losses, and kind of take back control,” he said.

“I think this is fundamentally disruptive. It’s a solution that they’ve been looking for because gift cards run outside the rails. Like everything else, if I want to go to the store and buy something and use my credit or debit card, I’m running on Visa or MasterCard rails. Gift cards don’t run on the rails, so that means the merchants aren’t paying interchange and we’re paying a rev share to the CUs that make up for their interchange. Oftentimes it’s greater than interchange.”

Saying that the new CUSO begins rolling out within the next couple of months, Metz added, “The data we’re going to get is going to be powerful. The impact both on communities, on non-interest income, and on member spending should be pretty significant.”