Two-Year Window of Opportunity? Some Say Yes
WILMINGTON, N.C.-Two weeks following the Fed's final interchange ruling, CU attitudes toward the future of debit could be changing, shedding some of the doom and gloom predictions and now working to leverage what some believe could be one of the biggest opportunities to win new members in years.
According to several industry executives, more credit unions are beginning to look at the next two years under Durbin as a chance to win big business by maintaining the product status quo and not adding fees, and possibly adding checking or debit incentives to attract more consumers as banks eliminate rewards and add fees.
Just last week, for example, USAA Federal Savings Banks announced last week it will be terminating its debit rewards program Sept. 1
In fact, one analyst believes a number of credit unions are quietly happy that the new debit interchange rules are here. "They may not say it publicly, but they are a little gleeful because they see this as major opportunity over the next two years to gain highly desirable market share," offered Bob Giltner.
The chief DDA strategist for Velocity Solutions predicted that more credit unions will begin developing ways to take checking and debit share, and then get the number of debit transactions up to prepare for any obstacles that could come down the road if the two-tiered debit interchange system does not work. Giltner explained that he is on a CU panel with the Members Development Company (MDC) that is designing strategies for a group of credit unions to gain DDA share.
"They believe this opportunity is great in the next two years. There will probably be people shifting their accounts in the next year or two at a rate 50% higher than the past five years, because of all this change. Credit unions that are part of this effort want to make sure they get more than their fair share."
Sarah Lietz, director of product development for MDC, a virtual organization owned by 50 credit unions working to improve CU collaboration, told Credit Union Journal her company hopes to "come up with some creative design concepts for checking accounts that our credit unions could implement and competitively differentiate themselves from banks."
Michael Kelly, president and CEO of PSCU Financial Services, St. Petersburg, Fla., said he has been questioning the concern many credit unions have shared about the potential loss of revenue from the new interchange rules.
"I shake my head and ask, 'What are we talking about here?' I am not sure that I get what is going on in some parts of CU Land," said Kelly. "I go into credit unions that are a billion in assets and they are planning to rip out millions of dollars in interchange income. Well, there is no evidence this loss will happen, at a minimum not at least for a year. And for the marketplace to react to this new rule (and make the two-tired system ineffective) will take a while, if in fact that happens.
The opportunity, both Giltner and Kelly emphasize, stems from the fact big banks have to change pricing, and all but three credit unions do not under the new rules. Kelly said PSCU is sharing a message with its clients that now is the time to "make hay. Our argument is you have a 50% advantage over the big banks, why give it up? So pick two networks-one signature and one PIN- that will have the two-tiered schedule and handle all your transactions and get moving."
Learning from Southwest Airlines
Kelly believes CUs should be sharing a message to consumers similar to the one delivered by Southwest Airlines when carriers began adding bag fees. "They say, 'Bags fly free.' Credit unions should be saying, 'We are not about nickel and diming you to death. We are about providing service that is differentiated at a great price.'"
The next step is to segment the membership and create strategies that drive debit card usage, added Kelly. "The person who uses the card three times a month is very different than the person who uses it 80 times. You can't send both the same message."
David Hall, director of business development for the ACCEL/Exchange network, the Brookfield, Wis.-based Fiserv's payments network, sees the next year or two presenting advantages for credit unions to take market share. "I caution that it is time to hold steady and not copy the big bank down the street."
Bill Lehman, VP of portfolio consulting for CSCU in Clearwater, Fla., added, that "If credit unions just market their programs the way they currently are they are going to be extremely successful. This is perfect opportunity to steal market share."
The outlook comes at the same time Visa has stated it does expect the new interchange rules to have "unintended consequences" for small banks and credit unions. "I guess the question is, eventually does the market compress and the two-tired schedule does not work-maybe, maybe not," Kelly stated. "But certainly it won't happen overnight. The window is open. I don't know for how long, but the opportunity is here."