By Ray Birch
DES MOINES, Iowa—It’s time credit unions look at debit as if it were a line of business that’s not making any money.
That is advice from The Members Group, which is concerned that steadily declining per-transaction debit income may not be top of mind for many credit unions as increasing debit volume keeps portfolios profitable—for now.
“What we may be seeing is the canary in the coal mine,” said Brian Scott, VP of sales.
Scott said that many factors, and not just the Durbin rules, are eating into debit dollars and that the trend will likely accelerate. Those other factors, he said, include PIN-less debit, Visa’s PAVD program and Apple Pay’s swipe charge, and he added that more threats are surely coming.
“The point is that many credit unions are looking at their debit program’s bottom line, seeing it is holding steady or even growing, and think things are honky-dory—but things may not be,” said Scott. “They look at these individual threats, like PIN-less debit, and say yes that costs us a little bit. The say the same for PAVD and the Durbin rules. But if debit income, on a per transaction basis, continues to go down—as it looks like it will—at some point credit unions won’t make any money off of debit.”
Brandon Kuehl, TMG manager of product development, said that an “inflection point” will occur when transaction volume levels off as the number of new people adopting debit markedly slows. Then, he said, credit unions will have to pivot to understand the current market.
New Tech Costs Money
Brian Scott, PSCU
Kuehl cautioned that what could hasten debit’s fall from profitably is layering new technology onto the product.
“As we continue to add more technology from all these new payment types, such as mobile and EMV, debit revenue will continue to decline,” said Kuehl. “So at some point it becomes cost prohibitive to add these new products to debit.”
Both Kuehl and Scott see CUs possibly hitting the break-even point with debit within five years—maybe sooner given how fast the payment landscape is evolving.
“When you hit that point, where debit is not profitable, do you continue to push that product?” said Kuehl.
Scott and Kuehl said that debit is not going away, as consumers like it. But what will change is how credit unions promote debit to members, how they price it, and how they price and structure products related to it, such as checking.
“You need to plan today as if you make less money from debit,” insisted Scott. “Credit unions need to start right now and think about how do you bundle products and services around debit so people are willing to pay for the privilege of using debit.”
Not Free Anymore?
Brandon Kuehl, TMG
At some point debit won’t be a free product, continued Scott, pointing to how consumers 10 years ago would never have considered paying an annual fee for their credit cards.
“But now they are happy to do that to receive benefits like rewards,” said Scott. “It’s just like someone paying to download an app—someone will be willing to pay $4.95 a month to bank with you so they can download your bundle of services. My wife uses Target’s Red Card, and she would be happy to pay to use that card because she saves so much money on the 5% store discount and all the coupons. Credit unions need to look at these types of models right now. They need to ask: ‘How can we provide enough value so that someone would be willing to pay us to be a member here, just like they would pay Costco to be a member.’”
Kuehl emphasized that having a strategy around the CU’s payments chain is important, finding ways to get members to move up the ladder from cash and checks to debit, and then from debit to credit, which can boost profitability.
“Educate the cardholder base on what you have to offer with payments and the benefits of each method,” said Kuehl.
Scott reiterated the importance of credit unions addressing the issue of debit revenue today.
“As non-interest income is a big thing for credit unions, and debit income is probably the biggest portion of that income, it is imperative CUs today consider what might happen in five years when debit may not be profitable. How would they run the credit union today if that income were gone?”