Credit Unions Trying Different Tactics to Best Market Debit to Their Members

WASHINGTON – Because they are tied closely to checking accounts, debit cards have been making steady inroads into credit unions’ day-to-day operations. But while there may be only one basic debit card product, there are a number of different ways to market and distribute it to members, and three credit unions recently shared their institution’s debit card strategy and experience with other CU debit card executives. Speaking at a debit seminar over the Internet sponsored by Callahan and Associates, the executives from the $671 million University FCU, headquartered in Austin, Texas; the $429 million Honda FCU, headquartered in Torrence, California; and the $1 billion Allegacy FCU, headquartered in Winston-Salem, North Carolina; shared how they were able to get debit cards into the hands of more of their members. James Updike, CEO of Honda, described perhaps the most interesting and intense debit situation of the three. Honda is one of the handful of credit unions around the country who are exclusively, or almost exclusively, cash-free. Members of the sole sponsor credit union transact all their business with the institution through direct deposit, ACH, debit or credit card transactions or checks and none of the credit union’s eight branches, spread across the U.S. at Honda facilities across the country, disburse cash. Updike explained that in 1986 Honda FCU had 7,000 members and $16 million in assets. In 1987 the credit union introduced checking accounts, credit cards, ATM access and stopped disbursing cash. Since then, the credit union has grown to its $429 million size, has 48,000 members, over 37,000 of them with checking accounts and over 32,000 with debit cards. “Given our cashless model, we saw introducing our debit card to as many of our members as possible to be among our highest priorities,” Updike explained, adding that the credit union had adopted very liberal criteria for who could have the card. “The member had to be able to fog a mirror,” Updike said, meaning that the member had to be breathing. Further, the member could be no more than 60 days overdue on a loan. Updike said the credit union had decided early not to charge any fees for the use of their debit card – even for those transactions which the member validates with a personal identification number rather than their signature. Signature transactions bring more interchange, but Updike said the credit union didn’t want to put their members in the middle of a tug of war between their credit union and merchants which have a strong interest in steering cardholders to use their PIN’s. Instead the credit union had decided to try to upgrade the features of its debit card by, for example, bringing its debit transactions in house to make the transactions appear on member’s account information screens in real time. Honda has also declined, so far, to add a rewards component onto its debit card program. “We just couldn’t justify the expense,” Updike explained. If everything remained equal, Updike explained, the credit union determined that it would have to increase the number of debit transactions by 17 per month in order to make sure the debit rewards program just broke even. Updike explained that combined with the a close relationship with Honda USA which has seen the credit union handle much of the company’s payroll, the debit program has helped make Honda the primary financial institution for the bulk of the CUs members. Brad Shoff, a senior manager with University FCU, explained that his credit union has not yet made a decision about a rewards program on its debit card and that it had already made some initial missteps when introducing the program to its members. For example, Shoff related how University had adopted a “swipe and win” promotion for its debit card but neglected to explain to members that transactions validated with PINs were not eligible to win. Even though signature transactions still pulled significantly more interchange than one which use PINs, Shoff explained that the credit union had stopped trying to drive specific debit transactions or to increase the amount per transaction. “The value per transaction number was just not as useful to us as trying to increase the number of debit transactions overall,” Shoff said. “The more important calculation for us was the checks were net losers for us whereas debit transactions provided some income.” Shoff said the credit union’s promotion of its debit program had paid off in that signature based debit transactions, while still not growing as fast as PIN transactions, still grew at 21% last year. He also said the credit union had not yet decided whether to offer some sort of rewards program on its debit card and that the credit union was still searching for a program that would provide the “right balance” between costs and income. Allegacy, by contrast, had opted for the Debit Rewards program offered by Certegy, its card transaction processor. Melody Garcia, a relatively new manager with the credit union, explained that the program grants a point for every $2.00 spent in a signature debit transaction and that the points are eligible for use on travel or merchandise. Garcia explained that the credit union had felt the need to offer the rewards program because it was in a highly competitive market which included a regional bank which offered a strong debit rewards program. Adding the program had fulfilled the credit union’s goals, she said, as active accounts increased by more than 21%; transactions per active account increased by almost 19% while the number of accounts increased by more than 22%; and the average value of each transaction moved up by 3.5%. Interchange as well increased by just over 13%, she reported. -