The importance of debit transactions in the credit union industry is continuing to grow. Use of electronic channels, particularly debit cards and ATMs, in credit unions is significant. Over 35% of all debit transactions at credit unions in 2003 were debit cards, a higher proportion from this vehicle than in either banks or thrifts (Federal Reserve – Payment Market Survey).
Along with the increasing popularity of debit cards, the popularity of stored-value cards has grown immensely as well. These cards can be either closed loop (only able to be used at one merchant) or open loop (able to be used at multiple merchants). While closed loop gift cards have historically driven the market, open loop options are becoming available at an increasing number of financial institutions.
An Exploding Market
In 2006, open loop prepaid card transactions totaled $34.8 billion. By 2008, this is expected to increase 165.6% to $92.5 billion. Over the same period, closed loop cards are expected to increase volume only 34.5% to $93.1 billion (Aite Group). If this trend continues, open loop cards will easily pass closed loop in transaction amounts over the next two years.
Two Potential Markets for Credit Unions
Why should credit unions care? For those who already do not offer these types of services, gift and reloadable cards offer credit unions a way to serve members who may not otherwise do business with the credit union.
Acting like a debit card, reloadable cards can be used in a variety of ways. Two of the more unique examples are youth allowance cards and those that have the potential to focus on the underserved, such as a payroll card.
Youth allowance cards are a great way to introduce adolescents to financial services and financial responsibility. With this program, the youth would receive a card from the parent who would have access to the account in order to deposit funds. Through this product, they would learn how to responsibly use electronic forms of money and budget their income and expenses.
Another type of reloadable card option is one directed towards underserved markets. An example of this would be a payroll card. Through these, employers can pay their employees directly with one of these cards, rather than providing them with a check that may take them into a check cashing service if they are currently not involved with a financial institution. With many of these individuals being recent immigrants, they come from countries where the banking system is not widely trusted and therefore are hesitant to become involved no matter how safe and sound the system is in the U.S.
With gift and reloadable cards continuing to increase in popularity, a significant opportunity exists for credit unions. Tapping into these markets can increase membership and provide new sources of non-interest income for the bottom line. Join us for Expanding Your Card Strategy with Stored-Value Cards , a webinar brought to you by Callahan & Associates.