Analyst: CUs Should Move Into Deposit-Based Payments

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FT. LAUDERDALE, Fla.-Credit unions scrambling to fill the income void being created by the CARD Act's limits on overdraft fees should look to deposit-based payment products, according to one analyst.

Josh Gilbert, senior manager with First Annapolis Consulting, said his firm's analysis projects such payment products will generate the bulk of revenue growth in coming years. Such products include prepaid debit cards and gift cards.

Meanwhile, Gilbert reminded that the payment mix landscape is shifting as consumers deleverage, in part due to lenders that have tightened credit. The usage of debit cards, he said, is really increasingly related to macro-economic trends. "Credit growth has been modest, checks and ATMs have seen a slow decline in the recession, although ATMs have stabilized," said Gilbert.

Signature debit has seen a 16% increase over the past year, while PIN debit is up 20%.

"Debit will continue to grow, but the rate will decline and that will have implications for you over the next five years," Gilbert said. "The shift is that the consumer is trying to move away from debit. We still think that, long-term, credit is the business to be in.

First Annapolis is projecting that despite the recession, electronic payments, including credit cards, show the best opportunities for long-term growth.

"What we've started to see in the last six months is a move away from price-driven (credit card) competition to cards that offer true product differentiation, such as budgeting tools," Gilbert told CSCU's recent annual meeting here. "We still think that credit cards are critical to capturing the overall relationship."

Gilbert, who said that credit losses on cards peaked in Q3 2009, along with First Annapolis are positing that the recession, combined with the CARD Act's implications, mean some "good things" for smaller issuers. "Product changes in the wake of the CARD Act create opportunities to capture consumers while shopping offers."

One key, said Gilbert, is boosting penetration rates among members carrying the CU's card. He suggested that 93% is a "practical penetration rate," and noted, "There is a big bang if you can increase penetration to 70% from 60%."

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