New Rules Open Small Window of Debit Advantage

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RANCHO CUCAMONGA, Calif.-Credit unions should enjoy the short window of time remaining for debit transaction income to be unaffected by the Durbin amendment to the Dodd-Frank Financial Reform Act, because that window is closing.

In fact, according to Caroline Lane, SVP of business development and marketing for CO-OP Financial Services, credit unions will even enjoy an advantage over issuers in the short term.

Lane noted at least one of the major networks, Visa, has already agreed to respect the proposed two-tier system for interchange, which will allow financial institutions with less than $10-billion in assets to enjoy the same level of interchange. As a result, she said, those institutions should be able to continue to fund rewards enhancements on their credit and debit programs.

"This has caused some people to say smaller institutions have an advantage, but we don't know how long that will last. At CO-OP we think this is a rare opportunity for credit unions to have an advantage over our banking brethren."

However, Lane emphasized, this is a short respite. She said the "same people who were going after debit interchange," led by Sen. Dick Durbin (D-IL), have indicated they want Congress to take a look at credit interchange as well.

Just "A Matter of Time'

Legislation that focuses on limiting interchange rates on credit card transaction "is only a matter of time," she predicted, adding that such legislation probably will follow the same path as the Durbin amendment that capped debit interchange.

As of today, "technically nothing has changed in the amount of revenue credit unions can earn on their debit transactions," Lane observed. "Initially, credit unions with less than $10 billion in assets will not be subject to the 12-cent cap. But I think the smart thing to do is assume this opportunity will only last a short time and ramp up marketing to attract new debit users. The most important thing is making sure rewards programs are flexible so they can change if the environment changes."

How to ensure such flexibility? Lane said CUs should examine the velocity at which members can accrue points and the velocity at which they can spend points, known in the industry as "earn and burn." While commitments that already were in place must be honored, new programs can be introduced from a designated date forward.

Too Popular To Discontinue

"I would expect credit rewards will continue to be important," she said. "There are so many really great programs out there, so for a credit card issuer to get loyalty they have to have rewards attached to their cards."

Lane cited Lowcards.com and Bankrate.com as resources that have charts comparing many different rewards programs and pricing for checking accounts, which she noted are linked to debit rewards. Lane advised all CU marketers to be regulars in reviewing those sites for competitive updates.

"All of the big banks' checking pricing requires a pretty big balance to avoid monthly fees. It is important to know fees, balance or direct deposit requirements, and rewards to judge the attractiveness of a debit card. One thing to consider is the types of rewards a credit union offers. Cash-back is the most popular, but it is the most expensive. Look for programs that are flexible so that if interchange takes a big hit in the future, credit unions can change."

For additional resources on debit cards, pricing and related topics, visit www.cujournal.com and search by keyword.

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