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In today’s challenging economy there is a growing consumer shift from credit cards to debit cards. Consumers may be weaning themselves from credit as a budgetary constraint or because they have reached their credit limit and want to avoid more debt. Regardless of the reasons, cardholders are increasingly turning to the debit card for their transaction needs. For credit unions, this shift in consumer behavior means debit cards have the potential to generate a greater percentage of interchange income, and it makes sense to introduce a rewards program as part of your debit card offering. Rewards can increase the frequency of card use and encourage members to use their debit card for large-ticket items, such as college tuition or home renovations, in order to earn larger rewards. They can also encourage inactive cardholders, which constitute as much as 40%-50% of the average debit card base, to begin using their cards. Studies have shown that consumers of all ages and from all backgrounds are opting to use electronic payment options, increasingly debit cards, instead of checks or cash. Issuers who still have ATM-only cards should consider moving those customers to a debit card to remain competitive. Approximately 80% of the top U.S. banks have debit rewards programs, so putting a similar program in place will help credit unions stay competitive in today’s marketplace. In the future, credit unions may also find themselves vulnerable to competition from decoupled debit cards, which are still an unproven but potentially significant threat. Decoupled debit cards are those offered by a third party, often using merchant-funded discounts. These debit cards effectively transfer the interchange revenue stream from the credit union to the issuing third parties. Competition is also coming from financial institutions that are offering philanthropic rewards. While credit unions have historically catered to individual member interests and the member’s community or business affiliations, many competitors today have designed individualized customer-focused debit rewards programs, including philanthropic rewards. Debit rewards programs can increase member satisfaction, playing into the ‘what’s in it for me?’ dynamic. As such, it’s important to choose a loyalty vendor that has a wide range of programs and with options for the credit union to develop a customized program that meets its specific need. Typically, members will have different touch points-from merchandise, gift cards or travel reward preferences to cash-back or discounts on other financial products. Loyalty programs that can be structured as enterprisewide are optimal for increasing a credit union’s ROI. One example is providing rewards for discounts on car loans or home equity loans. Choose a vendor that can gather data from various product lines (debit card, credit card, direct-debit account or other loans) and customize a member program that will improve the overall member experience and relationship. Debit rewards programs are part of the broader loyalty program category and research has shown that loyalty programs have the potential to increase ROI by reducing customer attrition rates by 20%, according to 2008 research from Mercator Advisory Group Inc. Additionally, loyalty programs generating a 5% improvement in customer retention can nearly double profits in five years. The reality is that today’s marketplace requires debit card options, and rewards programs can help motivate members to use their debit cards more frequently and for larger transaction amounts. Credit unions must also be willing to improve their member’s access to the full DDA balance. This requires the implementation of processing and risk management systems to allow maximum utility of the card. Debit rewards program can help your credit union improve profitability and member satisfaction by encouraging members to make more purchases using their debit card; purchase larger-ticket items with their debit card; come in contact with your credit union’s brand more frequently; activate a previously inactive debit card; and reinforce the member’s checking account relationship, thus improving member retention and loyalty.

Peter Westerman

Credit Union Times

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