CLEARWATER, Fla.-Debit card volume is likely to grow as consumers seek to better manage tight budgets and avoid credit cards. But analysts are cautioning that credit unions are going to need to get more aggressive with their own debit card strategies if they plan to compete with banks.
Card Services for Credit unions (CSCU) shared statistics that show more than the typical steady growth in debit cards, as well as a decline in credit. While the number of active credit cards is up more than a percentage point (63%) in 2008 over 2007, annual dollar volume declined by $70 on average per active account, as have average transactions per month per active account (5.61 in 2008 compared with 5.66 in 2007).
"I think some of the decline in credit is from cannibalization by debit," said CSCU President Bob Hackney. "Debit continues to grow. We finished the year with the highest debit usage since we have been tracking it. We are at 15.1 transactions a month per active account. Debit transactions are growing at a faster rate than credit. Debit has not caught up to credit in volume. But in terms of the number of transactions, debit now exceeds credit. And volume was up a couple percent to $6,800 per active account on an annual basis."
Debit Cards As A Budgeting Tool
The steady climb in debit has been occurring for years, reminded Caroline Lane, SVP, business development and marketing for CO-OP Financial Services in Rancho Cucamonga, Calif., who suggested debit is no longer just replacing cash and check transactions. "In light of the economy, from our daily conversations with credit unions, it seems consumers are using debit cards more than credit, either because they are tapped out on credit or they can't get new credit because lending has tightened. They also want to budget better."
Lane contends that for debit cards to really expand, credit unions must attach rewards, leading CUs into banks' sweet spot. "Credit unions can structure checking accounts that are designed for a typical demographic group," Lane suggested. "For example, since the younger Gens X and Y don't really like checks, why not offer a completely electronic account and have it be something a little more compelling, a different flavor than your everyday vanilla checking account?"
Tom Gandre, chief debit officer for PSCU in St. Petersburg, Fla., emphasized that attaching rewards to debit can fend off competition not just from banks, but from alternative payment options, such as PayPal. In 2008, PSCU saw debit business grow, based on transactions, by about 20%, according Gandre, who is not surprised by debit's continued rise. Echoing sentiments he shared with Credit Union Journal late last year (CU Journal, Dec. 1, 2008.), Gandre reminded that debit is "insulated" during a tough economy since it is used more for staple-product purchases like groceries and gas. "So in these economic times you want to continue to encourage members to use debit and not retrench to cash and checks. In some of the studies we have participated in it shows how when folks go into difficult times they look to debit, much like they do cash, as a way to manage money."
Jim Gowan, EVP and COO at Credit Union 24 in Tallahassee, Fla., says the drop in oil prices, as well as consumers' use of debit for staples like groceries and gas, will keep debit use stable at a minimum, and not be affected by the economy. "People may change their spending habits some, but they have to buy necessities," said Gowan, who feels the drop in fuel prices allows more members to pay for gas using debit, instead of credit.
Gowan recommends that to drive debit usage, CUs must educate members.
"Many roll out debit programs and don't spend a lot of time teaching members ways they can use their debit cards. For example, some credit unions have very high ATM usage. Typically, CUs are paying for all or some of that. If they educate members that instead of using ATMs they can go to Wal-Mart and get cash back at POS, that eliminates their ATM expense and at same time provides interchange income. Some credit unions are very focused on getting members to use signature debit because of the higher interchange."
Not Everyone Agrees
In Dallas, Mark Fenner, SVP-national sales manager for TNB Card Services, offered a different perspective. "I don't think we are seeing a shift from credit to debit. I think debit is still displacing cash and checks, and we are seeing debit volume climb in the single digits year over year. On the other hand we are seeing the same number of credit transactions, but the dollar volume per transaction has come down a bit."
Fenner said TNB believes in rewards strategies to take share today, for both credit and debit. "I think credit unions should use a strategy that rewards members regardless of how they spend. Don't try to drive them to one vehicle over the other. Put rewards on two vehicles, actually three if you break debit up to pen and signature. Offer competitive products and let members spend the way they are most comfortable."
MORE@CUJOURNAL.COM
Read more about how the economy is changing the credit and debit card business and how CUs are responding to those changes at cujournal.com and typing the following terms into the search function:
Experts Say Debit Card Volume May Turn Out To Be More Recession Proof
For info on this story:
* www.cscu.net
* www.pscufs.com www.tnbcard.com
* www.co-opfs.org
* www.cu24.com
* www.equifax.com/home
* www.cscu.net
