Does your credit union really need all the debit and EFTnetworks that it currently has?
That's a key question that ATM network executives say credit unionsshould review now that economic times have gotten tighter and manycredit unions are working hard to wring as much profitability asthey can from their programs and services while retaining a strongmember focus.
“I think a lot of credit unions have come to have as many EFT anddebit networks as they have because that was how the industry grewup,” explained Lynn Kneebone, regional sales director for CO-OPFinancial Services. Before the waves of consolidation that haveswept the industry, the ATM and debit markets had relatively fewnational networks and a multiplicity of regional ones.
Kneebone often speaks to credit unions about CO-OP's usageanalytics program, a software tool that helps credit unionsunderstand and track their debit card revenue and expenses.
Many credit unions seeking to maximize their EFT and ATM coveragejoined more than one network over the years and have kept them eventhough the ATM and EFT market has changed and the whole EFTeconomic model has also shifted, Kneebone and other executivesexplained.
For example, the previous lack of nationwide networks tended tomake availability of ATMs that take members' cards more importantthan the cost of a given network. Further, the relatively low useof debit cards at point-of-sale terminals de-emphasized theevolving importance of debit card interchange, network executivesexplained.
Now the larger number of nationwide ATM networks means that creditunion members can count on broader ATM access. At the same time,the number of EFT networks a credit union has can actually undercutits debit interchange revenue.
Kneebone and other executives explained that using several EFTnetworks can shortchange a credit union's debit card program byproviding merchants a number of networks to choose from for routingdebit card transactions at a rate beneficial to the merchant notthe credit union.
“When a credit union member at a POS swipes their card, themerchant will route the transaction on the network that is leastexpensive for them,” Kneebone explained. “Unfortunately, thatnetwork will not usually bring the credit union all the income thatanother might.”
Kneebone added that credit unions can have difficulty understandingthe total impact of maintaining various networks because theindividual transactions remain quite small, and it's only in theaggregate that they can make a difference.
Then the difference can be significant. The $1.1 billion AssociatedCredit Union headquartered in Norcross, Ga., has seen an increaseof 25%-30% in its debit and ATM income since it moved from onenational credit union ATM network to CO-OP Financial Services andafter it moved from having four debit and EFT networks to usingonly the Interlink and Plus networks affiliated with Visa.
Interlink is Visa's point-of-sale PIN debit network and Plus isVisa's global ATM mark. “Going from one ATM provider to another andthen from different EFT networks to one has really been a boost toour debit program,” said Vivian Wendt, manager of services forAssociated. “We are really quite pleased.”
Now, whenever a member swipes his or her debit card, no matter whatnetworks the merchant uses, the transaction routes to the creditunion using Interlink or Pulse, allowing the credit union to reapthe rewards of the higher interchange.
Wendt reported that, like many other credit unions, Associatedaccumulated its debit networks over time without examining how muchthey cost or how they affected debit card revenue. Still, even whenthe CU resolved to look into how its debit card program wasstructured and how much money it made, Wendt reported that staffwalked straight into the issue's complications.
“It took us about a year to really get our hands around this andunderstand it,” Wendt reported, even though the credit union hadthe resources of the Georgia Credit Union League to help.
The league organized a task force to help its credit unionsmaximize their debit card revenue in late 2007 and found that theexistence of nationwide networks means that CUs can largely abandonthe regional networks.
“Of course, as soon as we say that there will be some situationwhere a credit union might not have coverage,” said Diana Houston,senior vice president for business development for the league. “Soyou can never guarantee coverage because that changes all the time,but you can say that overall, on average, credit unions would dowell to look at how their debit programs are structured.”
But Jim Park, CEO of Credit Union 24, a network that Associateddropped, said he endorses the concept of credit unions cutting backon networks but worried that credit unions might focus too much ona single element-price-in what is a very complex topic.
“We have clearly moved from the 90 or 100 networks that existedwhen I got started in this business 27 years ago,” observed Park,“But there is a lot of difference between not wanting to have fiveor six networks and taking it down to one or two.” Park noted thatfee and interchange schedules are remarkably fluid in the debit andEFT industry, and they can and do change every day. Going with onlyone or two networks could lock a credit union into a contract thatmight not be as beneficial in a year or 18 months down theroad.
He also observed that other qualities such as fraud prevention andcustomer service should play an important role in a credit union'sevaluation of its different debit networks. “There is just more tothis than only price,” Park said.
Kneebone acknowledged that the complexity of debit programs andcontracts are a primary reason more credit unions have not lookedmore closely into their debit programs, but she maintained that itis worth doing.
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