New Study Finds More Than Half of Credit Unions Are Missing A Huge Opportunity With Debit

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The following is a transcript of the podcast episode hosted by Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com

Dr. Kathy, what are you seeing in regard to overall debit usage among credit union members? And why should credit unions be focused on improving debit card issuance and usage?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

That’s such a great question. When we think about it, debit is one of those payment vehicles that consumers certainly accept. They embrace it. According to the Federal Reserve, about 70% of electronic payment transactions in the U.S. are being done on debit card transactions. And there’s really nice steady growth over the last four years. That happens because members use those cards every single day. They’re getting cash. They’re paying for things, making purchases. They might be using a PIN, or they might be using a signature, but it’s such a fast, easy, convenient way to connect those members to their accounts at their credit unions and it really drives that meaningful relationship and drives engagement for them. So while debit is such a strong payment vehicle that we’ve been using you, we’re starting to see some other things come into play things with P2P [person-to-person payments] and fewer and fewer people may be carrying cash. So there is a transformation that’s happening. I don’t think it’s anything that’s going to happen significantly overnight. But we know that debit users know how to use their debit cards. They’re comfortable with them. They feel safe and secure with them, and it really connects them in a very nice way to their credit union.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

I agree, Kathy. It really is that everyday connection between a member and their credit union. And there’s a great deal of value that comes with the branding — seeing their credit union name on the face of their debit card. You’re right too. It’s interesting that this payment product that has been around for decades now is also being seen as a point of new payment innovation. So to your point, we’re seeing its role in some P2P transactions and also some B2C [business-to-consumer] distributions through things like push payment. So I think debit cards are here to stay.When we’re looking at debit card usage, how does debit card usage differ across demographics such as age and income?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

That’s another interesting question. I only have to look at my 23-year-old son and those younger Millennials. I don’t think he even has checks. He’s had a debit card since he first opened his account, but he knows how fast and easy and convenient it is. He doesn’t like to live on and use his credit card. So I think that younger Millennials, the 18 to 24 year olds and maybe some of the lower-income earners, they might be more likely to use that that debit card and they just sort of gravitate to it. It’s kind of embedded in the whole payment experience for them. But what’s interesting about that is it does create such an excellent opportunity for credit unions. And how can credit unions use debit card as a tool and a vehicle to encourage members to develop a complete relationship with their credit union as their primary financial institution? And how do debit cardholders use that card to build a credit history so they can move into credit accounts? And then at some point in time, how can the credit union start to migrate them into some other payments vehicles that are at their disposal? But definitely the Millennials and maybe the lower-income users really gravitate toward debit card.

Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com

I find it interesting that you brought up the Millennials and that younger demographic since I actually fit into that Millennial category. I am not as young as your son is, but I share quite a bit of the same usage patterns that he does in that I do remember going to the bank and getting a checking account. You get your checkbook in the mail, and I can honestly think I’ve probably used about maybe five checks from that book and predominantly switched over to just using the electronic debit card system. So I definitely agree just from my own personal use of the debit card, I find it interesting seeing as you’re saying, credit unions taking a look at that particular vehicle and saying okay, “How do we then evolve and get that person to use other different payment methods such as potentially credit?” With that in mind,…

What are some of the tactics that credit unions are using to increase debit card activation and usage that you found in the study?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

It’s really important to remember that from the minute you open that relationship, it is so important to engage that member, that new consumer that’s walked in off the street. They’ve opened that account, and if you want to drive that primary financial institution relationship, how do you ensure that before they leave that branch they have a card. We see an awful lot of credit unions that use instant issuance technology. When the member walks out, the card is activated and they can walk out using it. How can you then take connection the next step further? So when you think about the evolution and the lifecycle of issuing a card, getting a piece of plastic in their hand, and ultimately even a digital issuance, which is making that card, that relationship available, digitized so it could be loaded into a wallet in the future. But then you have to go from there, you have to issue it, get it into their hands. And then how do you use marketing tactics? With an instant issuance you don’t have to worry about a card is going to come in the mail and it goes in the drawer and it sits there and no one uses it. They walk out and it’s active. But then how do you drive further engagement with email campaigns integrating rewards and loyalty? We’ve also seen that other digital products, that ability to have card controls to turn my card on and off, to set some limit, giving the consumer more control over that card, more direct access, digitizing it, and enabling it through their mobile devices. All of those things really drive engagement and create those patterns that you want to see over and over. And then there’s always rewards programs. It’s so interesting because we saw in the survey that only about 11% of credit unions felt that their rewards program was very effective at driving that debit card usage. But we see data over and over again that a well-thought-out, well-executed rewards program does become an incentive to reach for that card. Millennials, everybody likes free things. Everybody likes points. And I don’t have to do anything. I just use this card, and then I can get those things. So I think that rewards, while they may be a little bit underutilized, and there’s so many things you can do with merchant-funded rewards to really offset the cost of it. It’s driving engagement and behavior from the minute consumers walk into the branches to start that relationship, through the whole lifecycle of growing that relationship, and really reminding them about how connected they can be with that debit card. We just see that as really fundamental to debit card growth and usage.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

Now to add on to that point, it’s that rewards are of particular interest for the Millennial consumer. So this is all falling together very nicely. We have an interest on the part of credit unions to attract the Millennial users and debit cards are a product that they really enjoy and then they’re also very incented much more than older user groups to gravitate toward rewards. They find those particularly motivating.

Debit card rewards are still relatively uncommon with credit unions. The CO-OP study showed that 65% of credit unions are not currently using debit rewards. So why should credit unions consider adding them?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

It is it surprising that the usage is so low, that 65% are not using debit card rewards. It gets back to how do you drive that behavior? And thinking beyond the day-to-day transactions when you’re at a merchant or you’re paying for things, how do you incorporate other payment activities, things like paying recurring household bills? It’s really about getting that card everywhere and then tying a reward to incentivize that behavior so that the cardholders do use those cards and create those very deep relationships. So it’s about awareness. It’s about engagement. It’s about rewarding them, driving loyalty. And it’s everything. It’s from the minute you open that account to every single time you need to connect that consumer  to their account to conduct their life, basically.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

I agree. It’s really about creating muscle memory, if you will, to utilize the debit card for all of that everyday-use type of transaction. And rewards really help to drive that. We have seen really successful implementations of all sorts of rewards programs that are beneficial not only just for driving that activity but beneficial for the overall relationship. Some credit unions are offering rewards for both debit and credit card activity, and that way members can start to accumulate rewards even more quickly and enjoy those benefits.

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

I think you’re really onto something there. This idea of rewarding the total consumer relationship and combining products. We’ve even seen credit unions that if you open a loan account, you get bonus points. So it’s every payment vehicle and every piece of the relationship and tying them together for integrated rewards experiences.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

Even as we think about impressing upon members the importance of digital options, there can be rewards associated with putting debit credentials into a mobile wallet or something like that. It can really help to just reinforce all of those options to members.

What are some of the benefits and challenges of integrating mobile into the debit experience?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

You don’t have to go anywhere, look anywhere any more to see consumers have their phones in their hands. They’re everywhere. They’re everywhere that consumers are and they use them to communicate. They use them for all sorts of information. You’re standing in line at the checkout, you can get a coupon on your mobile phone. You never would have thought to bring the coupon that used to come in the mail or that you might get with a statement. So mobile and digital have become so deeply ingrained in consumer behavior. And it’s very robust. It has capabilities. When we think about debit and how we want to create the digital experience, it starts with making sure that you have a good solid digital and mobile banking strategy. How can you make it seamless for a member to understand what their balance is? They can look up a check if they want. They can pay someone else. It’s really about, again, going back to the lifecycle and the entire journey. How do you create more services and deliver them through the mobile device that the consumer used to have to go to a branch for or call a call center for. I think it’s about information and access. How do we morph this further into self-service and meeting more of members’ needs. Part of this we talked about — cards controls and alerts — a little bit before. Consumers love that secure feeling that they get. You use your card, and let’s say it’s a transaction over a $300 limit, and you get that text message that says, “This is your card. Did you do this transaction? Reply no to stop.” They like that feeling of security and control that it gives them. And when you think about the fight against fraud and how fraud is kind of morphed from the plastic world into the card-not-present world receiving so much more of that the ability to say, “I’m going to just turn my card off because I’m not using it or I lose it or I forget it someplace.” They can very easily with digital mobile apps just put those card controls in place using mobile and digital to say, “I’m going to give that debit card to my son at college, but I’m going to control and restrict the spending and perhaps what he can do with it with limits.” So much of it comes back to: Consumers love their mobile phones. They have them everywhere that they are. They have no problem downloading and using apps. And the more you can feel them safe, secure, and engaged and tie them back to the credit union brand, the more that’s going to drive loyalty. The more that drives transaction volume. The more it strengthens the relationship. So it’s really about embracing the mobile phone in this whole ecosystem that we’re creating.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

Ryan asked the question about what some of the challenges might be where mobile and debit converge. I think one challenge that we find is that a cardholders will often set up a default payment type for mobile payments, and some don’t often shift from the one payment type that they set up as their default and a lot of times that default payment product is a credit card. So it’s a bit of a hurdle to overcome in getting consumers comfortable with putting debit credentials in those mobile payment solutions. That’s an important part to consider in a mobile payment strategy. But again, here’s where I think that demographics for debit are an advantage. So again, debit is preferred by younger members in that Millennial age group and mobile is preferred by younger members. So I think bring those two things together, and pooling debit together with digital can really help to drive up adoption, and then place on top of that what Kathy was saying about card controls — it’s a great combination.

Kathy, as you pointed out earlier in the previous question, a good way to enhance the customer experience is to remove the fraud aspect, but unfortunately debit card fraud is on the rise. And it seems a majority of that fraud is occurring in transactions where, as you point out, where the card is not physically present. Additionally we now have card skimming at the ATM becoming a problem. What are some of the ways that credit unions can fight against debit card fraud?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

It’s such an important topic for everyone in the payment space, in the credit union, and for servicing the members and making sure they feel safe and secure. You’re right. The EMV chip cards came out and that has really helped curtail counterfeit card fraud at the point of sale. So what it did was cause the bad guys to move to card-not-present fraud. That’s where I think a wide arsenal of tools is so important. It’s engaging the member with the things that we’ve talked about already with card controls, but it’s also making sure that you have new innovative tools. So 41 percent of the credit unions in the survey thought that the fraud tools that they had were extremely effective, but what we’re finding is that we even need more robust tools and that’s actually why we’ve been investing in artificial intelligence. Artificial intelligence has an ability to adapt and learn and grow and so many of the tools that are in the market today it’s limits to velocity, it’s looking for the patterns, but they’re still models and artificial intelligence in COOPER, which is our new fraud-fighting tool we have in pilot for a subsection of our clients, it’s this ability to adapt and grow and learn and also to look at more information about that consumer. So you need to be conscious of the fact that you’re not only looking at just transaction data, but what if you factored in the geolocator service so this transaction happened here. I know that my member is not there because their phone is somewhere else. How do we put those things together so that we can change the game on the bad guys and look at multiple data points and put that together to create really learning, growing much more dynamic environment, and adding that into the tools that we have at our disposal today. So we’re very excited about COOPER and where we’re going with that and how it’s rolling out.

Before we sign off here, Kathy, can you give us an explanation of how can credit unions partner with CO-OP to boost debit card penetration, activation, and usage?

Kathy Snider, Senior Vice President of ATM/Debit/Prepaid/Shared Branch for CO-OP Financial Services

Well, you know, it’s such a great story because CO-OP is dedicated to credit unions. It’s who we serve, it’s why we exist, and it’s our legacy, it’s built within the fabric of who we are. We have 5,600 shared branch locations, and with the natural disasters that we’ve all been going through in the last few months and we here we go again with things happening in Florida, shared branching really provides a great value proposition for credit unions. It’s not just the 5, 10, 50, or however many physical branches you have. Through shared branching, you have access to 5,600 locations across the entire country. That means that I can walk into any of those branches and do what I would do in my home credit union. So shared branching is uniquely CO-OP. It’s uniquely credit union. It builds upon the premise and the promise of people helping people and credit unions working together to grow and compete. We have a surcharge-free network of over 30,000 ATM locations. Again making sure that members have that secure, fast, easy access to their funds and they’re not paying surcharges for that. And we also have 24×7 call center support, other mobile features. We have marketing services available to help drive that debit card activation. Usage campaigns, rewards programs. You can put together an entire suite of services. And so CO-OP has created this ecosystem of interrelated products and services that tie together that are so unique in the industry. And at the same time while we’re doing that, we’re focusing on data and access to data and how we leverage that to drive even more innovation. So it’s the entire ecosystem all put together and it’s all focused on credit unions and their members, and that in and of itself is an extremely powerful value proposition.

Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group

It’s the completeness of the solutions available throughout the lifecycle of a debit card and therefore a member’s relationship. So think about the resources available for account opening, whether that is instant issue or other account opening solutions, encouraging the use of debit card through digital channels, the marketing assistance that is helpful to encourage activation for cards that have been centrally issued, or marketing programs to encourage usage. And then also solutions to help with rewards and fraud management. It’s taking a look at all of those services across the spectrum offered by CO-OP that can help with the management of a full debit card solution. 

CO-OP and Mercator will be hosting a live webinar on November 1^st from 11-12pm PT to discuss the full results of the Debit Benchmark Study and provide insights into how you can optimize your debit portfolio. Register now: https://campaigns.co-opfs.org/webinar-state-of-debit/

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