Market the Debit Difference

Counteract the loss of interchange income by promoting card rewards and incentives.

July 16, 2013





Member Access Pacific:

The Members Group:

When it comes to how consumers use their debit cards, Kimberly Ploof sees merchants assuming a power they didn’t have before.

“Credit unions are starting to see the impact of the Durbin amendment, primarily with a decline of interchange fee income and a shift from signature-based transactions to personal identification number [PIN]-based transactions,” says Ploof, chief operating officer for Covera, a provider of payments solutions for credit unions.

“Merchants now are in the driver’s seat. Credit unions might have a relationship with Network A and Network B, and select A as their primary network. But merchants now make that decision.”

Barney Moore, senior portfolio consultant at CSCU, agrees that changes to the interchange rate structure for exempt debit card issuers have affected credit unions’ interchange income and “will impact how aggressively they promote debit.”


Moore says younger consumers have a strong preference for debit cards, and credit unions’ ability to market effectively to this age group will be a key factor in sustaining debit growth.

Best practices

Because not all networks are equal in terms of their usefulness to credit unions, “we tell credit unions to take a hard look at the networks they think are necessary,” Ploof says. “It used to be that credit unions had relationships with all networks as a convenience to members so they could use their debit cards anywhere.

“But it doesn’t make sense now to carry multiple networks,” she continues. “It’s better to have one national network for ATMs and one for the point of sale [POS].”

Ploof advises credit unions to educate members about POS networks. “Encourage members to use signature-based versus PIN-based transactions. Signature-based transactions provide more interchange income and give consumers greater legal protection.”

Credit unions also can encourage members to treat debit card transactions as credit card transactions that require a signature at the point of sale. “Members have to ask for it or initiate it by pressing cancel,” Ploof says. “It might be uncomfortable for them to do so at first, but they quickly get used to it.”

She also advises scrutinizing debit card programs to make sure members are using their cards. “Some members are reluctant to use them because they’re uncomfortable with the idea that money can immediately be withdrawn from their checking account," Ploof says. "For credit unions, unused cards are an expense.”

Some credit unions encourage members to use their debit cards by offering a cash reward—say 5 cents or 10 cents per use—or with points. “Although it’s an initial expense to offer such a promotion," Ploof says, "the hope is to change long-term behavior and get more members to help with profitability by increasing their debit card use.”

Moore agrees that overcoming members’ resistance to using debit is a significant challenge. “Many credit unions continue to issue ATM-only cards. Educating members on the utility, value, convenience, and benefits of debit is important. Issuing a debit card with every new share draft account should be standard practice.

“If you can put an active card in a member’s hand right when the account is opened,” he continues, “your chances of getting initial and ongoing use are greatly enhanced. What better time to sell your member on the features and benefits of your debit card, especially when coupled with some sort of first-use or spending incentives?”

Moore says improved data analytics and segmentation tools are giving credit unions the ability to identify and target member segments with offers that are specifically relevant to them. “These tools help credit unions identify low, medium, and high users, and in turn develop tailored marketing and incentive campaigns.”

He says credit unions can, for example, target low users (one to five transactions per month) with incentives that reward use in excess of 10 or 15 transactions per month. “Analytic and segmentation tools let you identify target groups, determine who qualifies for the offered incentive, facilitate fulfillment of the offer, evaluate the performance of the targeted accounts, and determine return on investment.”

Moore says credit unions will continue to promote debit card use and attempt to expand the breadth of payments to include more transaction types. Others will offer free checking, rewards, and other incentives for debit card use.

Aside from incentives, Moore sees the conversion of existing cash, check, automated clearinghouse (ACH), and ATM transactions to debit card transactions as providing a tremendous opportunity.

“Cash continues to be a prevalent form of payment at restaurants, supermarkets, gas stations, and other ‘on-the-go’ purchases,” he says. “Checks and ACH are prevalent forms of payment for monthly bills and government payments. These are payment types that can be converted from expenses to revenue-generating transactions” when done via debit.

Credit unions that offer rewards for debit transactions are seeing growth across the board—in transaction and dollar volume, activation and card penetration rates, and in total cards, Moore says. That’s especially true with cash-back rewards.

“One credit union we work with offers cash back on every debit transaction and is generating more than 20% annual growth in transactions and volume, as well as active and total cards,” he says.

Credit unions that falter in the debit arena typically “don’t prominently promote the features and benefits of their cards and don’t issue debit cards with every new account,” Moore adds. “Oft en, the member service staff is not well informed, trained, or incented to promote debit cards, and messaging is infrequent and/or ineffective.

“That’s why regular and frequent promotion of the features and benefits of your debit card through your member service staff , in-branch promotional materials, and online presence is critical,” he continues. “Credit unions should deliver the message consistently and repeatedly. Members need to be constantly reminded of what debit can do for them.”