Too Many Debit/EFT Networks Can Leave Credit Unions All Wet
That's a key question that ATM network executives say credit unions should review now that economic times have gotten tighter and many credit unions are working hard to wring as much profitability as they can from their programs and services while retaining a strong member focus.
"I think a lot of credit unions have come to have as many EFT and debit networks as they have because that was how the industry grew up," explained Lynn Kneebone, regional sales director for CO-OP Financial Services. Before the waves of consolidation that have swept the industry, the ATM and debit markets had relatively few national networks and a multiplicity of regional ones.
Kneebone often speaks to credit unions about CO-OP's usage analytics program, a software tool that helps credit unions understand and track their debit card revenue and expenses.
Many credit unions seeking to maximize their EFT and ATM coverage joined more than one network over the years and have kept them even though the ATM and EFT market has changed and the whole EFT economic model has also shifted, Kneebone and other executives explained.
For example, the previous lack of nationwide networks tended to make availability of ATMs that take members' cards more important than the cost of a given network. Further, the relatively low use of debit cards at point-of-sale terminals de-emphasized the evolving importance of debit card interchange, network executives explained.
Now the larger number of nationwide ATM networks means that credit union members can count on broader ATM access. At the same time, the number of EFT networks a credit union has can actually undercut its debit interchange revenue.
Kneebone and other executives explained that using several EFT networks can shortchange a credit union's debit card program by providing merchants a number of networks to choose from for routing debit card transactions at a rate beneficial to the merchant not the credit union.
"When a credit union member at a POS swipes their card, the merchant will route the transaction on the network that is least expensive for them," Kneebone explained. "Unfortunately, that network will not usually bring the credit union all the income that another might."
Kneebone added that credit unions can have difficulty understanding the total impact of maintaining various networks because the individual transactions remain quite small, and it's only in the aggregate that they can make a difference.
Then the difference can be significant. The $1.1 billion Associated Credit Union headquartered in Norcross, Ga., has seen an increase of 25%-30% in its debit and ATM income since it moved from one national credit union ATM network to CO-OP Financial Services and after it moved from having four debit and EFT networks to using only the Interlink and Plus networks affiliated with Visa.
Interlink is Visa's point-of-sale PIN debit network and Plus is Visa's global ATM mark. "Going from one ATM provider to another and then from different EFT networks to one has really been a boost to our debit program," said Vivian Wendt, manager of services for Associated. "We are really quite pleased."
Now, whenever a member swipes his or her debit card, no matter what networks the merchant uses, the transaction routes to the credit union using Interlink or Pulse, allowing the credit union to reap the rewards of the higher interchange.
Wendt reported that, like many other credit unions, Associated accumulated its debit networks over time without examining how much they cost or how they affected debit card revenue. Still, even when the CU resolved to look into how its debit card program was structured and how much money it made, Wendt reported that staff walked straight into the issue's complications.
"It took us about a year to really get our hands around this and understand it," Wendt reported, even though the credit union had the resources of the Georgia Credit Union League to help.
The league organized a task force to help its credit unions maximize their debit card revenue in late 2007 and found that the existence of nationwide networks means that CUs can largely abandon the regional networks.
"Of course, as soon as we say that there will be some situation where a credit union might not have coverage," said Diana Houston, senior vice president for business development for the league. "So you can never guarantee coverage because that changes all the time, but you can say that overall, on average, credit unions would do well to look at how their debit programs are structured."
But Jim Park, CEO of Credit Union 24, a network that Associated dropped, said he endorses the concept of credit unions cutting back on networks but worried that credit unions might focus too much on a single element-price-in what is a very complex topic.
"We have clearly moved from the 90 or 100 networks that existed when I got started in this business 27 years ago," observed Park, "But there is a lot of difference between not wanting to have five or six networks and taking it down to one or two." Park noted that fee and interchange schedules are remarkably fluid in the debit and EFT industry, and they can and do change every day. Going with only one or two networks could lock a credit union into a contract that might not be as beneficial in a year or 18 months down the road.
He also observed that other qualities such as fraud prevention and customer service should play an important role in a credit union's evaluation of its different debit networks. "There is just more to this than only price," Park said.
Kneebone acknowledged that the complexity of debit programs and contracts are a primary reason more credit unions have not looked more closely into their debit programs, but she maintained that it is worth doing.