Before You Switch: Be Sure 'Big Incentives' Are Worth It

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Another debit provider offering "big incentives" has just approached my credit union! What should I do?

First of all, apply the old principle: "If it sounds too good to be true, it usually is."

Some processors are offering upfront incentives to purchase your business. Is this always as good as it may seem? Initially, maybe. Before you sign any new agreement, look at what that incentive will really do for your credit union. All processors and networks will usually charge you a de-conversion and/or an early termination fee to get out of your current agreement or switch providers. Contact them to see what that fee is. You may find that the so-called incentive is really no incentive at all, because your costs of breaking agreements may exceed the upfront incentive.

Are you looking at an "apples to apples" comparison? A pro forma or cost analysis can come in many forms and can become quite confusing. Pricing for transactions may be spelled out, but other costs are not. What would normally be classified as pass-through costs are not always included or these costs are listed as just "pass through" without giving a dollar amount. Make sure all pass-through costs are spelled out and included. One such cost is the communication cost. If you are being quoted an on-line, real-time proposal, these costs can get pretty high, as they require a dedicated line open 24 hours a day to receive and transmit information. Ask your league to help you with a comparison.

Make sure you don't get tied into long-term contracts. Usually with incentives come long-term commitments of six, seven, even 10 years. But what about the pricing terms? Can your cost of doing business with that processor go up during that time? Many agreements have yearly escalation clauses. Also, can the term of your contract change? Sometimes adding functionality or changing your set up can actually extend your contract for another six to 10 years. Terms of contracts and relationships should be based on service and support.

Review your current provider's billing. Do you see items on that billing that are not on the new proposal? This should alert you to items you need to question. Usually costs associated with doing a "ike" function require the same costs, one way or another.

Those costs may be combined in some other area or they could fall into the pass through category. Regardless, you need to have them spelled out to understand the proposal completely.

Are they going to hold back some of your interchange income? Some processors charge a liability or loss protection program that holds back part of the interchange income your credit union has earned. Over a year, this can amount to thousands of dollars taken out of your credit union and put into their pockets.

Look at the processor's loyalty. Have they been doing business with credit unions in the past? What is the longevity of that relationship? Are they committed to the credit union industry as a whole? We have all spent many resources, both financially and non-financially to protect our rights in the credit union movement from the banking industry. Why should you put money right back into the pockets of banks by using a debit processor they own?

Verify functionality and which functions are actually performed by the new processor and which are outsourced-and at what additional cost. What additional responsibility is now required of the credit union to perform those tasks? Some examples may be charge-back processing, account resolution or member disputes and marketing assistance. These items can add substantially to your final cost with the additional workload performed by your employees.

Make certain that all the fraud prevention tools are in place. Fraud is an ever-growing concern. Does this new provider have all the bases covered? Are they recognized by your Bond provider as meeting all of their fraud requirements? Don't assume that they are; contact your insurance provider before making that assumption.

Contact current users and ask them for their feedback. Don't always use the references provided by the processor. Talk to your league to see if they know of other users in your area and call them directly. Talk to credit unions that have recently converted or that have been on the service for a while. They are your best sources of information.

Finally, go back to your current provider and let them know of your concerns and questions. Make them come back to you and show you that the decision to stay with them is right or not. You may be surprised that everything presented on paper is not always in your best interest.

Don't be afraid to ask questions, don't assume anything and ask your league for help. It may save you in the long run!

Jeremy Yardley is manager of the Wisconsin Credit Union League's Service Corp., and can be reached at 800-242-0833, Ext. 3230, or

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