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Promote the Debit Difference

Encouraging members to use their debit cards can boost CU revenue.

June 1, 2015

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.”

“Everything” includes:

  • Identifying qualifying members, including desired target demographics;
  • Determining which incentive will work best, such as dinner, theater tickets, or airfare;
  • Developing a timeline;
  • Creating marketing materials relevant to the medium being used, such as postal mail or email;
  • Knowing what you’re asking members to do to increase their debit card use; and
  • Starting the campaign and tracking results.

“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.”

NEXT Increasing Member Awareness



Increasing member awareness

Scott says credit unions have to teach members that signature transactions earn more money for the credit union, which ultimately benefits members through lower loan rates, higher dividends, and other benefits.

But sometimes merchants won’t give members a choice—they simply offer PIN-based transactions, he says. “In cases where there’s a choice, most merchants or cashiers don’t mind if you ask for a signature transaction. In the case of small, family-owned businesses, getting a customer to use PIN may mean a bit more revenue for them versus signature.”

Scott suggests providing incentives to members who ask for signature transactions when they use their debit cards.

“You can do it via awards, such as a $0.05 credit for each signature-based transaction, or by applying a fee to PIN-based transactions after a certain number of such transactions,” he says.

“We’ve found that credit unions that charge a fee haven’t run into much negative member reaction.”

Another wrinkle: "Rounding-up" programs where transactions are rounded up to the nearest dollar with the difference going to a charity, he adds.

Thornton sings the praises of debit card rewards programs. “These should be more than just cash-back offers. People react more positively to the promise of a tangible reward such as dinner than they do to the abstract image of cash.”

Credit unions also can reward members for debit card transactions that exceed a certain amount, such as $50, says Scott. “If they’re making a purchase totaling $46, the offer of a reward will incent them to add something to bring their payment past the $50 threshold. You can’t underestimate the need to educate members on the use of debit cards in terms of frequency and the mode of transaction.”

Moore agrees. “Offering rewards for debit is one of the most effective ways to increase use. Ongoing promotion of rewards, bonus point promotions, and spend-and-get campaigns have been very effective in driving additional usage.”

Household and relationship rewards, where points can be combined with other accounts’ reward points, help members more quickly accumulate redeemable points, Moore adds. Also, encouraging use for everyday spending and recurring bills, and communicating such debit card benefits as $0 liability and purchase protection, can get members to use their cards more frequently.


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“Another tactic is to provide alternative benefits in the form of higher interest rates on deposits if certain criteria are met,” he says, “such as enrolling in e-statements, conducting a certain number of debit transactions each month, having at least one direct deposit, and one online banking log-in each month.”

Debit card ‘don’ts’

The biggest mistake credit unions can make in the debit realm is failing to understand how to encourage debit card use, Scott says.

Another, Thornton adds, is ignoring the large percentage of members who use their debit cards frequently—a segment no credit union should treat casually.

Also, “don’t fail to segment and target specific members,” she says.

“Say you want to reach 18- to 24-year-olds,” Thornton says. “You would look at such statistics as iTunes, coffee shop, or entertainment-related transactions that include a high number of members in that demographic and target the campaign and incentive to fit that demographic.”

Moore sees slack debit card marketing as “a failure to communicate and promote their use and value. They need to effectively market the differentiated features and benefits that their competitive advantage gives them the ability to offer.”

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