Debit Market Share: CUs Take On the Banks
Now that the deadline for the Durbin amendment interchange cap to take effect has passed, financial institutions are continuing to develop ways to offset lost interchange revenue. One solution? Raise fee income by making debit and ATM transactions more expensive for consumers.
As banks begin eliminating free checking, increasing their debit transaction fees, raising their ATM surcharge fees and cutting their debit rewards programs, many credit unions are seizing an opportunity. They are promoting the benefits of their debit programs, hoping to lure consumers away from banks and increase their market share.
Card Services for Credit Unions, the association of credit unions that processes card transactions with FIS, is encouraging its member CUs to leverage the regulatory changes by continuing to offer attractive, beneficial product sets, which could help turn bank customers into CU members, CSCU’s vice president of portfolio consulting services Bill Lehman said.
“In light of the new debit interchange legislation that will drastically reduce debit interchange income for larger financial institutions, the larger banks are aggressively looking for alternative sources of revenue,” Lehman said.
“Two of those alternative sources include discontinuing free checking accounts and making major changes to their debit card programs. A majority of credit unions see this current bank trend as an opportunity to capture market share," he said. "And, since most credit unions are exempt from the interchange legislation, they have the opportunity to maintain their free checking accounts and benefit-rich debit card programs.”
Mary Isaacs, executive vice president and chief financial officer for the $832.5 million, La Crosse, Wis.-based Altra FCU, said her credit union’s best immediate defense against the Durbin amendment’s impact is to push debit card use among members. The CU is promoting a number of creative debit products and programs, some already in effect and some in the works.
One popular debit product at Altra is the “instant issue” unembossed debit card, which members can pick up at a branch and use the very same day. The idea behind the instant issue card is that it increases debit use thanks to convenience–since members don’t have to wait for the card in the mail or activate it over the phone, they’re likely to start making purchases more quickly, Isaacs said.
Altra FCU also plans to push its prepaid debit card, as the Durbin amendment does not affect prepaid debit purchases, Isaacs said. And the prepaid card carries several additional benefits. It’s preloaded with cash, so it helps members control their spending and poses less of a risk if stolen.
The CU is considering the introduction of a “second chance” payment card: a prepaid debit card that holds a limited balance and can only be used for PIN transactions. Altra is also working on a debit card that members can personalize with photos.
Isaacs said if the CU’s debit program income does become threatened, the CU would most likely market its credit card program. She noted that generally speaking, members don’t favor checking account fees, as small as they may be.
“We want to hold out as long as possible before adding fees to our debit and checking products,” Isaacs said. “Once we get to the point where we’re trying to limit our debit transactions, then it’s a whole different ball game.”
Baxter Credit Union, a $1.5 billion CU based in Vernon Hills, Ill., is touting the benefits of its points-based debit card rewards program at a time when many banks are dropping similar programs, ATM/Debit Manager Lori Reiss explained.
Participants of Baxter CU’s rewards program receive one point for every $2 they spend in debit signature purchases; points can be combined with points they earn through credit card purchases and redeemed for travel and merchandise rewards. To attract more users, Baxter CU recently eliminated the five-year expiration date it originally tacked onto its reward points.
“This is an opportunity to promote the rewards and benefits of our program and increase debit usage among our membership,” Reiss said. “Our program allows them to use the payment option that’s best for them and still be rewarded.”
Fees associated with Baxter CU’s debit and ATM services have remained the same for many years. Members are charged $1.50 per transaction when they surpass between five and 10 withdrawal transactions per month at a non-BCU ATM, depending on the type of account.
PSCU Financial Services, which is partnered with both Altra FCU and Baxter CU, urged credit unions to zero in on its debit programs as the interchange cap deadline drew near.
Ron Silvia, PSCU Financial Services’ vice president of debit, ATM and prepaid services, said while there may be downward pressure on the interchange revenue that the institutions exempt from the interchange cap (those with $10 billion or less in assets) receive, most of them remain reluctant to add or increase fees. On the other hand, banks are talking about fees and consumers are starting to take notice, he said.
“Consumers have been hearing from banks and the news media about new transaction account fees as well as increases on existing fees,” Silvia said. “It’s an ideal time for credit unions to exploit the opportunity to gain market share and increase their membership base.”