Although often soft-peddled, member debit card use is one of the best ways for credit unions to generate noninterest income, debit card providers say.
“I think there’s a huge opportunity for credit unions in this area,” says Michelle Thornton, director of product development at CO-OP Financial Services. “We’ve been offering ‘CO-OP Preferred,’ a segmented, targeted debit card campaign for almost four years. Recently, among 23 credit unions participating in one campaign, the estimated increase in interchange revenue amounted to $1.5 million—a 348% increase over previous revenues.”
Debit card use typically generates 25% of a credit union’s noninterest income among credit unions offering this product, says Brian Scott, vice president of sales at The Members Group.
“In fact, many credit unions are seeing revenues from debit card use increase,” he says. “While that’s a good thing, credit unions can make the mistake of thinking that because debit card revenue is rising, there’s no real need to focus on it.”
That’s because per-transaction revenue has fallen even as overall revenue has increased. “The concern now should be to encourage members to use their debit cards in a way that makes revenue go up even faster,” Scott says.
The key, he says, is encouraging more signature versus personal identification number (PIN)-based transactions. “But right now growth in PIN-based transactions is outpacing signature transactions.”
Debit card revenue comes primarily from two sources, says Barney Moore, manager of portfolio consulting services at CSCU: Interchange income on debit card transactions and overdraft protection fees for those who have opted in to receive that benefit. “These two revenue sources, combined with interchange on credit card transactions, make up the most significant components of noninterest income for credit unions.”
How significant? “Interchange income on signature debit transactions can generate $50 to $100 annually per active debit card depending on the level of use,” says Moore. “With an average ticket of about $36 per transaction, each transaction generates around $0.47 in revenue. PIN transactions also generate revenue, although at a lower rate—$0.34 on an average ticket of around $42.
“Courtesy pay fees typically are based on a per-item basis,” he continues. “Cardholders who opt-in to this service and use it tend to do so on multiple occasions over the course of a year. The fee revenue generated can be significant.”
Debit card outreach
Why do credit unions sometimes fail to campaign for increased debit card revenues? Lack of in-house expertise on debit card marketing or uncertainty about how to do it, says Thornton. “That’s why we do everything for our credit union clients.”
“We track the number and amount of debit transactions among individual credit unions and credit unions as a whole,” Thornton says. “This allows our clients to see how they compare with other credit unions.”
CO-OP analyzes members’ debit card use at three- and six-month intervals to see how promotional efforts have worked.
“Typically,” she says, “85% to 90% of the new behavior continues long after the campaign has ended.”
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