Debit Strategies Now The Subject Of Debate
BELLEVUE, Wash.-From shifting members to signature from PIN, to cutting rewards, or adding enhancements to attract new members, no clear-cut strategies are emerging as CUs make decisions to address debit programs post-Durbin.
Sources that spoke with Credit Union Journal agree that paths being taken by credit unions represent a mixed bag right now, and industry analysts themselves are split on the best strategies to pursue. A few believe credit unions will attempt to shift more transactions from PIN to signature — as one CU is currently doing (see related story) — while the majority contend PIN will win out because the transaction is less costly.
Rewards are on the chopping block at the same time some are considering adding incentives-there are those who believe the next two years under Durbin will offer credit unions a big opportunity.
David Hall, director of business development for Fiserv's ACCEL/Exchange network, said it's time for the industry to "take a deep breath. There has been so much passion in the last year-and-a-half, especially leading up to the Senate vote. Now we have to live with what has been decided and find ways to work through that."
Hall believes for those institutions under $10 billion in assets it should be business as usual, unless the two-tiered debit interchange system should be shown to not work. He advised strongly against CUs adding fees right now. "There is a danger there. For example, if I am going to charge $4 to $5 for a checking account, I better darn well as a small institution have all the bells and whistles the big bank down the street has. Because if I don't, the consumer will likely run to that bank and pay the five bucks."
A Warning Over Fees
Hall warned about adding transaction fees to modify member debit behaviors. "We have seen credit unions in the past steer members by using fees, often feeing for PIN to move members to signature. I saw that completely backfire on one large credit union in the southeast. They upset many members who then closed their checking accounts and left the credit union. Now they are trying to undo what they did."
Michael Kelly, president and CEO of PSCU Financial Services, St. Petersburg, Fla., explained that his company is advising credit unions to take advantage of the fact banks have to add fees and cut back programs now, whereas CUs do not. "Some credit unions agree with us, while others have told us they are going to shut down their debit card."
If credit unions begin to influence members to choose either PIN or signature, Kelly believes the trend will be to go to more PIN transactions. "They are less costly," said Kelly, who suggested most of the consumer behavior modification will likely come from institutions above $10 billion. "I think you will see big banks set that trend."
Hall said he is aware of many credit unions that are "refocused" on debit rewards, whether that means cutting out or cutting back, or looking at other options, like merchant funding. "I think rewards can still drive debit volume, and credit unions should take a holistic approach, rewarding members for their entire relationship."
But Kelly, and Bill Lehman, VP of portfolio consulting for CSCU in Clearwater, Fla., are aware of credit unions that have plans to dump debit rewards. Kelly, while choosing not to disclose the name of the CU, said decisions by credit unions under $10 billion now to dump rewards is not the right thinking. "Banks have to do it. Credit unions do not."
Lehman, aware of one Maryland CU planning to cut rewards, believes the trend will be toward fewer debit enhancements rather than dumping rewards altogether. "Certainly if credit unions do not have rewards now they are not going to be adding them."
One analyst is confident the entire financial industry will begin emphasizing credit rewards. "Issuers are trying to get consumers to use their credit cards more because they will make more in interchange fees," noted Bill Hardekopf, CEO of LowCards.com in Birmingham, Ala.
Get Ready for the Holidays
This strategy was taking shape well before the Fed's final interchange rule was announced, and Hardekopf thinks the trend will only accelerate. "We are seeing some very nice cash-back and airline credit rewards offers. Issuers have been offering these for a while, getting consumers trained to reach into their wallet or purse for that credit card rather than the debit card."
But expect retailers to jump in on influencing consumers' card choices. "I think we will see cashiers suggesting that customers use their debit card, because of the lower interchange," added Hardekopf, who did not rule out cash or other incentives eventually surfacing from big stores. "It would more likely occur for large purchases. There could be significant savings for the retailers there if the consumer uses debit over credit."
Hardekopf thinks things will heat up as holiday shopping season approaches. "I think we will have a classic battle, retailers trying to push you to use debit and card issuers trying to get you to use credit."