CUs Optimistic About Debit Program Growth & Profitability in 2019

Fintech companies are upending the payments world at every turn, but the time-honored debit card is still one of the most popular forms of payment among credit union members, according to a new study by CO-OP Financial Services.

The survey of 240 U.S. credit unions, which was done in partnership with Mastercard and Mercator Advisory Group and included CU executives, debit card product managers and other employees, also revealed broad optimism about the health and future of credit union debit programs.

Most were actively supporting debit card issuance, and over of third of the respondents said at least 70% of their checking account customers were issued debit cards. Most credit unions expected their debit programs to grow and be profitable in 2019.

“Although the debit card is just one of a growing list of payment mechanisms available to credit union members today, it remains a consumer favorite,” CO-OP President and CEO Todd Clark said.

The increased use of instant issue, which 63% of the respondents had or planned to have, is boosting debit programs, but another factor has been renewed interest in rewards programs, according to the study. Rewards programs took a hit after the Durbin Amendment capped interchange rates for financial institutions with more than $10 billion in assets. When that rule took effect in 2011, many large financial institutions dropped debit rewards programs to make up for lost interchange revenue. For small credit unions and other financial institutions exempt from the cap, that’s created an opportunity to woo members with rewards.

Now, 35% of credit union debit card issuers in the survey said they have debit card rewards programs, and 25% are thinking about adding one, according to the CO-OP study. Another 22% said they’re reevaluating or thinking about changing their rewards programs.

Measurable results may be elusive, however. Just 11% of respondents felt their rewards programs were “very effective” at driving debit card use; 9% felt their rewards programs were “not at all effective.” Nonetheless, only 3% of the respondents said their credit unions were considering ending their programs, and 51% said they weren’t considering any changes to their programs.

Part of the concern about rewards programs may lay in shifting network dynamics that are also threatening interchange revenue. More merchants are upgrading to point-of-sale terminals that identify which debit network is best for the merchant, the study noted. That in turn is putting downward pressure on interchange revenues.

“More transactions are being routed by merchants through the ‘PIN debit networks,’ earning less revenue and having a negative impact on the business model for debit rewards,” CO-OP noted. “Credit unions are changing the number of points earned per purchase, and some are moving to a merchant-funded rewards program to streamline their costs.”

“Signatures are no longer required by Mastercard and Visa at most merchants, and many merchants have stopped requesting a PIN at checkout, opting for PINless transactions. These changes are requiring credit unions to update the marketing communications about cardholder rewards that currently emphasize ‘signature’ or ‘PIN’ transactions,” it added.

How those communications will get to members is worth wondering, because despite the increasing digitization of the payments world, the study found that debit card marketing promotions are still largely an analog effort at credit unions.

CO-OP found that about 65% of the respondents had never used search engine optimization to spread the word about their debit card programs, and between 30% and 40% said they have never used targeted email, digital ads or social media. Fewer than a quarter, however, said they never used direct mail and statement inserts (23%) or in-branch materials (20%).