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Members emotional ties can make affinity cards work

by Becky Fong
May 21, 1997; Canadian FundRaiser

Credit cards can be found in the wallets of most Canadians so it's logical that non-profit organizations should take advantage of this situation and use it to raise some revenue. Increasingly, the chosen vehicle is affinity cards.

"Affinity cards offer a segmented group a product their members are happy to use because of the emotional tie they feel for their particular organization or institution - a real affinity of the heart - that extends to their everyday spending," says Tracy Folks Hanson, vice-president of Marketing and Communications at MasterCard International, Toronto office. "People may not be willing to make a donation on a weekly, monthly or even yearly basis, but this gives them the chance to donate in a rather painless and effortless way."

The average Canadian holds two credit cards, and there are approximately 400 different cards available, each trying to serve a micro-market they have identified. "Because affinity cards capitalize on the loyalty of cardholders, this is a huge opportunity for non-profits to generate revenue," says Mike Tobias, president of Affinity Edge. "And because credit cards are so common, people will use them, so why not provide a convenient way for people to be philanthropic?"

Affinity card programs at universities are so successful because students are introduced to the card when they walk through the doors of the institution; many of them carry and use the card when they are alumni, and support their institution with relatively little effort.

Of all the financial institutions, the Bank of Montreal has been the leader of affinity cards in Canada ever since its beginnings in 1987. Now boasting over 500,000 accounts ranging from wildlife groups to academic institutions, B of M's MasterCard affinity programs have generated over $11 million of revenue for non-profit organizations in the past five years.

Dawn-Marie Desjardin, in the alumni services group at Queen's University in Kingston ON, estimates that 18,000 alumni, students, family and friends have helped Queen's raise $1.7 million over the past six years by using the university's MasterCard. "We have the number one university card," she says, "because our alumni has a strong affinity with Queen's and want to support our programs with the use of their card, through which a portion of each of their purchases is sent back to the university. Queen's is a notoriously close-knit school, and everyone who goes there wants everyone else to know; they are proud to carry and use a card that shows where they went to school, and that kind of loyalty is what makes a good affinity program," says Folk Hanson.

While many of the affinity card programs are MasterCard-based, the University of Toronto, which offers a TD Visa card, has nearly 25,000 cardholders and has raised over $1 million since 1988. "It's an efficient way for the university to generate revenue, because the groundwork was laid for the program when it began and now requires little manpower to keep it going," says Charlene Guy, Manager of Affinity Services.

Many of the university affinity cards do not have a yearly fee and some offer special options. For example, Queen's cardholders can earn AIR MILES, while U of T cardholders can designate part of the money earned from their card to go to a certain college or faculty.

Not an easy way to generate income --- at first

It is not only universities, however, that are benefiting from affinity card programs. Other organizations with programs include the Society for the Prevention of Cruelty to Animals, Alberta Fish and Game and the Ontario Medical Association. The Queen's experience notwithstanding, these organizations have all found, along with the universities, that although affinity card programs appear to be an easy way to generate income for non-profits, this is really not the case. While the generally accepted industry standard of the percentage of the card transactions non-profits receive from their affinity card program is one quarter of one per cent, and depending on the cardholder base and the efforts to promote the program, profits can be substantial, nonprofits should approach affinity card programs with great care.

"You need to consider carefully whether it is profitable for your group to set up an affinity card program, because there are costs involved that may be advantageous for a smaller group but may be very profitable for a group with a larger membership base," says Chrystal Hunsley, Relationship Management Officer, Bank of Montreal.

Organizations considering affinity card programs need to see whether the spending habits of the targeted cardholders will support the program, and if the set-up costs are worthwhile. The cost of setting up an affinity card program includes building up a cardholder base, and marketing and infrastructure costs and it will not make money right away.

Payback takes time, but is worth the wait

"You need to approach these costs as an investment, because this type of program will only start to become profitable after the card is advertised and cardholders start to use it," says Tobias. "The payback only starts to show up two years or more after the card is issued. From that point on, however, you can almost be sure that profits will be well worth the initial investment."

Given a concerted effort to attract a good cardholder base, the size of the membership generally determines profitability, but does not guarantee it. "Building the base is extremely important, because once you get the card into someone's hands, they are not likely to go through the hassle of changing or canceling it," says Tobias. And the longer you have a customer, the profitable they become.

University alumni have turned out to be the most favorable group to market affinity cards, having spent four years at an institution where they often form a strong attachment to their school. "Alumni groups are very good at raising money for their schools, so this is a natural fit for universities," says Folks Hanson. "Rather than focusing on students, we target the alumni because they earn more money and tend to spend more." Steven Boyd, Assistant Director of Fitness, Health and Recreation at Metro-Central YMCA, Toronto, still uses his Lifesaving Society affinity MasterCard he first received when he was still a teenager: "It was my first credit card, and it met my needs, so I never saw another card that made me want to change."

Make the process easy One of the most important things about starting an affinity card program is to make getting a card hassle-free. Many organizations send out applications in the mail, advertise in their own publications, and set up booths, but whatever the approach, it must be hassle-free. "It was a convenient application process, and it was advertised as a way to contribute to the Lifesaving Society, so I applied and received my card in the mail fairly quickly," says Boyd, who still uses his Lifesaving Society MasterCard although he has another credit card.

Banks can be helpful in providing traceable applications so that organizations can properly track which marketing efforts were the most successful in getting new cardholders. And what's in it for them? "Banks are generally eager to promote these programs, both because they are getting cardholders they might not have necessarily obtained without the program and because they can cross-sell them other bank products and services," explains Tobias. "We are always looking for opportunities to engage in mutually beneficial partnerships, expand our cardholder base and develop programs so that everyone makes money," says Lisa O'Toole, National Sales Group, Card and Direct Services Division of TD Bank, which issues affinity TD Visa cards.

Although generating revenue is the aim of the affinity card programs, they do not run by themselves. Organizations need to keep awareness of the card high and encourage their members to use it. "We have a solid membership and we are very conscious about letting them know that every time they use that card, they are helping to conserve wetlands and protecting breeding habitats," says Wayne Doherty, Manager of Licensing, Royalties and Retail, Ducks Unlimited Canada located fifty kilometers north of Winnipeg. The DUC affinity card program is arguably the largest of its kind in the country.

Strong marketing a key element

Just depending on the loyalty of cardholders, however, is not enough. Marketing and promotion is essential for cardholders to apply for the card and encourage them to use it. "Even though the alumni at Queen's is very loyal, we needed to offer them a superior product and aggressively promote it. We adopted close to 40 initiatives to generate applications," says Tobias, who was instrumental in launching the affinity card program at Queen's. To promote its cards, Queen's not only sends out direct mail but also advertises in its alumni magazines and set up booths on campus.

At the University of Toronto, students, faculty and staff returning to campus in the fall are greeted with a friendly reminder to apply for a card or to use their existing cards. The university hires students and part-time workers to staff booths that not only provide applications but also raise awareness of the program. "Although we do direct mail and other marketing efforts, it is really the booths that we set up on campus that get the best response, because people can fill out the form right there, and then receive their card in the mail," says Guy. "We try to promote this is a relatively effortless way to give to the university because since most people hold a credit card anyways, why not be philanthropic as well?"

Promotion seems to be another key to running a profitable affinity card program. "We promote the card as the preferred payment of choice and tie it into all of the products offered by Ducks Unlimited. This way we are able to maintain very high transaction rates on our cards, the key to making money," says Doherty. "We also make the applications readily available at our offices, and offer the card as one of the participation options when people become members."

Affinity card programs not only bring in revenue but also keep the organization or special interest group in the minds of its members. "Affinity cards help with our exposure and are something we want to promote," says Rick Ranger, Finance Coordinator of the Ottawa-based Lifesaving Society, which currently has over 1,600 cardholders. Ranger sees "the potential for growth and will take advantage of it in the future." Thanks to the increasing competition for donor dollars, card programs will likely be examined by more nonprofit organizations.

Not only is the potential for generating revenue through affinity card programs evident in the tremendous success of the universities, but it is also a necessity in a time when funding and budgets are being cut. "The programs take a great deal of investment to get going, but in the long-term the transactions on the cards just keep the money coming in," says Tobias.

Affinity card program DOs and DON'Ts

DO:

• Offer a competitive product;
• Market and promote aggressively using a variety of techniques such as direct mail, kiosks, and articles; and
• Take a long-term view that the program is an investment that will produce results later on.

DON'T:

• Be short-sighted when investing in the program set-up;
• Expect the program to run itself; or
• Expect to make money immediately.

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