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By Card Services for Credit Unions
Debit has been behind the wheel, driving payment industry growth ever since it first slid into the driver’s seat in 2004. That year marked a shift in the payments industry for the first time: global debit volumes surpassed credit volumes.
Four years later, debit growth remains stronger than ever. Consumers spend $1 out of every $6 on debit. In fact, today’s uncertain economic times have prompted many to prefer spending with “ready funds” via their debit cards as opposed to “paying later” on their credit cards. In 2007, 92% of transactions (40% of volume) were paid for with ready funds, while only 8% of transactions (55% of volume) were paid via general purpose credit cards.
How Consumers Use Cards
Pay Now with Ready Funds
Smaller Dollar Purchase
(92% of transactions)
Items that are consumed quickly
Substitute for cash and checks
Used more frequently than credit cards
Higher dollar purchases
(8% of transactions)
Non-Interest Income As debit usage has increased, so has interchange revenue. Historically, issuers relied heavily on finance charge revenue from credit card programs to boost card portfolio profitability. However, over the past five years, the percentage of consumers revolving on credit cards has declined. Meanwhile, debit usage has taken off. That coupled with today’s market of decreasing margins has made non-interest revenue increasingly important in managing profitability. In fact, in 2006, interchange income accounted for 36.0% of non-interest income, or $3.3B.
Interchange Revenue = Usage x Avgerage Ticket x Visa/MasterCard Interchange Rates
Debit Card Usage Is On the Rise Consumers have grown more comfortable with paying with plastic and are reaching for their debit card more often, even for small ticket items. Thanks to the “No Signature Required” regulation introduced a couple of years ago, signatures are no longer required on most purchases of $25 or less at certain merchants. This strategy has been very successful in increasing micropayment transactions and taking market share away from cash, specifically with Gen Y and other debit-heavy users. Think Starbucks and McDonalds. In 2007, Quick Service Restaurants (QSR) reported 36.4% growth!
Another key opportunity for debit growth is in the Bill Payment arena. With Bill Payment, although some members may prefer to take advantage of your credit union’s online banking services or pay online with their credit card, it’s important to remind members that paying bills online with debit cards is also an option. In fact, Bill Pay with debit is gaining more traction with consumers. In 2007, Visa reported 21.6% growth in this category.
Case Study – Increasing Usage of Your Debit Card Program Whether your credit union leverages these emerging markets or implements other top-of-wallet debit strategies, the foundation to success in today’s debit market is usage and retention. That’s just what Space Coast Credit Union with $1+ billion in assets discovered. They knew they wanted to increase the performance of their debit card program. They started by redesigning their debit card plastic design to appeal to a broader range of member interests. They rolled out new designs that ranged from skateboarding to manatees to racing. They also instituted ScoreCard® debit rewards and provided members with additional information/education on how to use a debit card. The results? They increased volume by 11.84% and increased debit card penetration (as a percentage of checking) to almost 75%. These metrics exceeded their goal by almost 5% - and earned them a CSCU CAMEO Award!
How Can You Maximize Your Credit Unions Debit Card Portfolio’s Potential?
INTEGRATE debit into the DDA account opening process. Along with online bill payment, debit is the primary account access vehicle– NOT checks. Like SpaceCoast FCU, make sure your debit offering meets your members’ needs, then promote, promote, promote. Consider Western New York FCU with $18 million in assets. With a budget of only $2,500, this credit union held a one-month “Win With a Spin” checking and debit card account promotion. Their goal was to encourage new and existing members to open a checking account with direct deposit, and walk away with a new debit card. For each new service a member signed up for, members had the opportunity to spin the wheel for a prize, including gas cards, movie passes, car washes, I-Pod Shuffle, and a pair of Buffalo Bills tickets. Their results? They opened 45 new share draft accounts and issued 34 new Visa check cards – plus 9 new CDs and 15 new Visa Platinum Credit Cards. A great example of effective cross-selling!
Light Users (1-6 transactions/month) – Early education on product features, benefits and how to use; promote security features and control/record keeping features.
Medium Usage (7-18 transactions/month) – Generate incremental usage with Rewards and promote new merchant categories to expand usage; promote benefits of signing
Heavy Usage (19+ transactions/month) – Use check card in new emerging channels, use debit card for higher and lower value transactions and reinforce signing.
Put it all into action, measure the results and refine your growth plan as needed! It’s not just the big banks that can succeed with debit, credit unions can too!
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
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September 29, 2008
7/26/2012 03:58 PM
Great article. Lot of good ideas that I can use for the debit card program at our credit union.
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