CUs in the Post-Durbin World

Debit card rewards and loyalty programs offer a window of opportunity.

November 19, 2011

Earlier this summer the Federal Reserve Board released the long-awaited final regulations pertaining to the Durbin Amendment.

Financial institutions of all sizes and charters must now ask themselves: What are my opportunities? What should I be doing to quickly achieve compliance and minimize any negative impact to my business?

The truth is that this post-Durbin world presents community financial institutions, including credit unions, with an opportunity to attract new customers and grow business.

Here are suggestions for credit unions to keep in mind to achieve these objectives.

Evaluate programs

Following on the heels of the Durbin regulations, credit unions actually have a window of opportunity to attract members via innovative, world-class rewards and loyalty programs—and ultimately create “sticky” members who won’t be enticed to switch financial institutions.

Kevin Barry
Kevin Barry is general manager, Star Network, First Data

While large financial institutions are looking for ways to boost their bottom lines following Durbin, credit unions have a unique opportunity to enhance their current value-added programs to help retain and expand their member base.

The first step is to understand members and know what types of products and services appeal to each segment. Consumers aren’t a homogenous group.

According to a First Data whitepaper, “Meeting the Needs of the New Financial Consumer: A Snapshot of Six Customer Segments”, which was based on research conducted by First Data and Market Strategies International, credit unions are best served by understanding their members’ unique needs.

Having this knowledge will help credit unions refine programs appropriately, tailoring those programs to meet the expectations of their current members and to appeal to potential new members they would like to attract.

Manage fraud

Mitigating fraud is of utmost importance to credit unions during this post-Durbin era. Fraud is a drain on everyone’s bottom line and, unfortunately, it is an insidious crime that continues to gain momentum through the increased complexity and sophistication of cybercriminals.

In light of this ongoing threat, credit unions have to be diligent about making smart investments to minimize the impact of fraud so they can maintain confident members and protect their bottom lines.

Credit unions should look to their technology partners for innovative yet cost-effective fraud mitigation, risk reduction, and data security solutions. Such solutions can help drive fraud and risk out of the payments system: within the card, the merchant process, the issuing process, and the transaction, reducing a credit union’s costs and liabilities.

Network nonexclusivity

The final regulations implementing the Durbin amendment state that debit card issuers must participate in two unaffiliated networks without regard to the authentication method (e.g., one signature network and one unaffiliated PIN network or two unaffiliated PIN or signature debit networks).

This means that credit unions that currently work with a single debit network provider are required to add a second, unaffiliated debit network to their existing arrangement.

Selecting a new PIN debit network is an important strategic decision that should take into account many considerations, including:

  • Merchant acceptance;
  • Operational capacity and performance;
  • Fraud mitigation;
  • Innovation capabilities; and
  • Overall strategic value.

In fact, “value” has supplanted interchange revenue as the new top consideration for selecting a PIN debit network partner. Credit unions should look for strategic partners that offer long-term value that will help grow their programs, reduce fraud, and prepare for future form factors and value-added services.

Take action now

It’s important for credit unions to take action now if they’re not already in compliance with this provision to avoid missing the mandatory compliance deadline and potentially facing negative regulatory enforcement consequences and reputational damage.

Issuers must comply with the multiple network requirement by April 1, 2012, and should keep in mind that network contracting and implementation timeframes require ample lead time to ensure compliance by this date.

With smart planning and strategic investments in the right areas, credit unions can make the most of this regulatory environment.

KEVIN BARRY is general manager, STAR Network, First Data.