By Ray Birch
RANCHO CUCAMONGA, Calif.—Are the ultra-rich credit card rewards programs finally having a spillover effect on debit card offerings?
A new study by CO-OP Financial Services indicates that could be the case, as a lot of credit unions not currently offering debit rewards programs are now considering the move.
Debit rewards programs throughout all financial institutions have lagged behind credit card rewards since credit card programs tend to be more profitable.
But new research from CO-OP reveals many credit unions now see that consumers are expecting rewards on all the plastic they use.
The survey of 240 CUs reveals that 50% of those not currently offering rewards are thinking about adding the perks. CO-OP stated that credit unions are “bullish” on debit card programs, in part due to rising instant issuance capabilities and increases in PIN debit transactions. The report shows, too, that many credit unions surveyed are predicting growth and profitability in the next 12 months for their debit card programs
Dr. Kathy Snider, SVP of product management for CO-OP, said she is not surprised by the findings.
“People now know that rewards work—people are points junkies,” said Snider, pointing to the success of the major issuers’ credit card rewards programs.
A Misperception
Snider said there has been a “misperception” by many that debit rewards programs are just too expensive to offer. But she said the success of credit rewards programs, as well as the need by credit unions for additional income streams, debit rewards are now on more CU marketing agendas for consideration.
Kathy Snider
“Credit unions now are looking at their entire portfolio of services and are asking where can I get more. And I think they look at debit as potentially an underperforming asset,” she said. “But we have demonstrated that with a good, targeted debit rewards program you can cover your costs and drive steady transaction growth.”
Snider said for debit rewards programs to truly be successful, a credit union has to dive deeply into its member data.
“I think there just needs to be some education about how do you effectively run a debit rewards program and control your costs,” Snider told CUToday.info. “You have to know your members, know where the thresholds are that will change behavior. That is why data analytics is key.”
The economy slowing down and the potential for a recession will likely drive up the use of debit, said Snider, as more consumers turn to debit when signs of economic stress are ahead.
Debit’s Ongoing Growth
Snider pointed out that debit is growing at 6%-8% year over year.
“As we know, debit transaction volume has a lot to do with the economy,” she said. “So, in 2009 all of a sudden everyone overextended themselves and credit balances were at an all-time high. Credit unions began to shut down access to credit, many faced huge write-offs, and consumers took a step back and began to live within their means. So we saw debit usage go up then as credit use declined.”
But that trend has reversed today as the economy has strengthened.
“Credit took off again and last year. I think it surpassed debit a bit in terms of overall spend,” Snider said. “But now we are also seeing credit liability actually higher than the record in 2009, when people had to course correct. People are overspending, and I think debit usage will begin to go up again.”
According to the latest Federal Reserve data, for the first time ever, consumer credit has risen above $4 trillion.
Knowing Card-Holders
Snider reemphasized the importance of “knowing” the credit union’s debit card holders.
“It’s making sure the credit union understands the demographics of the member base and that gets to preferences—how do they use their cards. Target rewards to things that make sense. Maybe you find one person needs rewards on their debit card and another does not,” she said. “To me, that gets to portfolio management, because one size does not fit all. Portfolio management is critical—understanding your data points and then driving usage for very targeted segments. Know who I am, what I like, and how I like to do it.”