The sweeping reform of the Durbin Amendment is having ripple effects across the banking industry. Faced with caps on debit interchange fees, financial institutions over $10 billion in assets have moved swiftly to transition their debit customers to more profitable credit card payment platforms. And they have done so largely using rewards programs.
“We have seen institutions over $10 billion in assets get out of debit rewards in droves,” said Andrew Gates, CEO of Azigo, Inc. and Member Rewards by CO-OP consultant for CO-OP Financial Services. “That makes sense as their debit interchange has been restricted and reduced. What doesn’t make sense are all the financial institutions under $10 billion in assets that dropped their debit rewards programs or shelved plans to roll them out.”
Today there are more than 50 billion PIN, signature and prepaid debit transactions conducted in the U.S. every year, according to the Federal Reserve. The 2015 Debit Issuer Study reveals that the U.S. banking industry issues approximately 165 million new debit cards per year in aggregate, and the average active cardholder conducts 23.2 debit transactions per month.
“Credit unions have a huge opportunity to own the debit market, profit from it, and provide members with the rewards and incentives they value,” said Gates. “And, if they focus a rewards strategy on increasing more lucrative signature debit transactions, they will benefit even more.”
Enticing Members to Sign on the Dotted Line
Gates affirms that the principles of rewards are the same, regardless of the member behavior they incentivize. In general, he recommends using a points system for signature debit rewards as points are easy to understand and have a high perceived value among consumers. “Getting members to sign for purchases can be as simple as giving them more points for it,” he said. “But you need to market the new rewards opportunity to them in order to see results. Remember that debit rewards are a great point of differentiation for your credit union since the member isn’t likely to be receiving them from a big bank. By expanding your rewards strategy, you are enhancing your credit union brand in the eyes of the member.”
Rewarding All Member Touch Points
Gates notes that rewarding signature debit transactions is just one of many ways to inspire member loyalty. “You can award points for visiting an ATM, securing an auto loan, downloading a mobile app, or even when a member provides you with an email address,” he said. “Creating a large ecosystem of rewards shows high appreciation for the member and leaves a lasting impression.”
To measure the success of your rewards program, Gates recommends looking at a range of metrics, including basic benchmarks such as the growth rate for new card activations, the number of members transacting more than 15 times per month and any increases in the number of accounts held by individual members.
“If you start with 7,000 active debit cards and you are able to grow that number to 8,000, that is a great thing,” he said. “And if members are signing for their debit transactions more often than not, that is even better.”
He continued, “What you are really trying to do with rewards is deepen the member relationship. Across all your product lines, your goal is to provide a superior consumer experience while strengthening your own business outlook. And, if you are not capitalizing on the current dynamics in the debit market, you are missing out on some long-term growth opportunities.”