Credit Union Debit Trends Look Positive

Fintech companies may have turned many parts of the payments world upside down, but the tried-and-true debit card is still one of the most frequently used forms of payment, and credit unions are optimistic about the future of their debit card portfolios, according to a new study by CO-OP Financial Services.

The survey of 240 U.S. credit unions, done in partnership with Mastercard and Mercator Advisory Group, included credit union executives, debit card product managers and other employees.

“Debit is a payment vehicle that has been around for a long time, and there’s a lot of buzz,” CO-OP SVP Dr. Kathy Snider told CU Times. “At the end of the day, debit is known, it’s trusted, it’s secure.”

Issuance Factors

Debit cards are such an integral part of checking accounts today that over a third (38%) of the respondents in the CO-OP study said their credit unions have issued debit cards to at least 70% of their checking account customers. That’s fueling optimism among credit unions – many expected their debit programs to grow and be profitable, according to the study.

Overall, debit card accounts will grow about 3% to 4% a year, CO-OP predicted. Much of that could come from young millennials and the less affluent, who are prime targets for debit cards, according to the study.

“Young adults, age 18 to 34 years, have been consistent over the last three years in their use of debit cards. The younger subgroup, age 18 to 24, reveal they are more likely to use debit, as they are often burdened with educational debt and additional credit options are out of reach,” the study said.

Credit unions focused on debit should know what their card issuance rates are against their deposit portfolios, Snider said. A good target for most credit unions is 75% to 85%, she noted.

Instant Issue Revving Up

One way credit unions are boosting debit card issuance is through instant issue – technology that allows branches, particularly high-volume locations, to personalize and activate debit cards for new accounts and card replacement.

Almost half of credit unions in the survey (48%) said they currently offer instant issue, and of those that didn’t offer it, 29% were actively planning to start.

Virtually all respondents in the survey said instant issue had a positive impact on debit penetration and/or use, but not all were sold on the idea. Cost, resource constraints and doubts about the value of the effort were common concerns, CO-OP found.

Rewards Heating Up

Card issuance is only one step in the effort to boost debit card usage; getting members to activate those debit cards is also important.

“If you’re going to the trouble to put it in their hands, you want every card active, because you’ll never earn a dime until it’s activated,” Snider said.

Email, phone and text alerts were the most common ways credit unions reminded members to activate their debit cards, according to the study. Only 13% of credit unions used online and mobile banking alerts.

Once members activate their debit cards, credit unions must then encourage members to use them. An increasingly popular tool has been the rewards program, according to the study.

“Rewards are definitely coming back,” Snider said.

Only 35% of credit union debit card issuers in the survey said they had debit card rewards programs, but 25% were thinking about adding one. About a quarter said they were reevaluating their rewards or thinking about changing the benefits in their rewards programs.

“Some credit unions shared that they reward both debit and credit card transactions. Some offer a relationship rewards program that encompasses multiple products and activities as the basis for providing members rewards,” the report said. “In this way, credit unions are able to reward all household payment activity, a strategy that aids cross-sell activities and provides a competitive edge against the large credit card issuers offering rich rewards for credit card transactions.”

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 were considering eliminating rewards; 51% weren’t considering making any changes.

Transaction Routing Spurring Changes

“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 explained.

“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.

The result is that many credit unions have changed the number of points earned per purchase. Some are shifting to rewards programs funded by merchants, according to the report.

Mobile Features Influencing Debit Programs

Whether and how members use their debit cards is increasingly a matter of how mobile-friendly their credit unions are. Overall, 87% of credit unions offered some services on a mobile app to members, meaning that about one in 10 did not.

Eight out of 10 credit unions said balance and transaction inquiries were extremely important features in mobile banking apps, followed by funds transfers (73%). Sixty-eight percent said the ability to make loan payments was extremely important; 54% said the same for bill pay and debit card alerts, respectively.

Over half (53%) of the respondents also said their credit unions offered online and/or mobile account opening services.

“The ability to open an account via mobile phone is designated as extremely important by 26% of credit unions surveyed,” the study noted.

Adoption of universal mobile wallets has been slower than predicted in the United States, yet over half of credit unions in the survey offered one and another 10% were in the implementation phase.

“Confusion over which merchants accept mobile wallets and a lack of clear consumer benefit has hampered their use,” CO-OP said. “Despite this market environment, the initial enthusiasm for mobile payments among the young adult population that credit unions want to attract and keep has encouraged credit unions to adopt mobile wallets.”

Fraud Expected to Grow

About a third (33%) of credit unions in the survey said their debit card fraud losses were decreasing – but just as many said their debit card fraud losses were increasing. Only about a quarter (26%) said they were the same.

Nonetheless, two-thirds of the respondents said they were comfortable or very comfortable that their card members’ data was safe, and 77% said they were comfortable or very comfortable that their credit union’s data was safe.

Looking forward, credit unions said they expected skimming to become a bigger problem, although most credit unions also believed card-not-present fraud would continue to be the main conduit for fraud.

“This is an important insight given that many consumers are already reticent to use their debit cards in CNP channels,” the study said. “If fraud in this area continues and more cardholders experience fraud on their debit cards, they may choose not to use debit cards in digital channels since it not only exposes the card but affects the cardholder’s checking account relationship.”