Credit Union Times - October 1, 2008 - (Page 21) Special Report: Credit / Debit / ATM As Debit Use Soars, Best Practices Can Help Optimize Performance As consumers increasingly turn to debit cards for everyday items–such as groceries, dry cleaning, fuel and other nondiscretionary purchases–debit usage has soared. Debit card transactions first surpassed credit in the U.S. in 2006, and the debit business is projected to continue growing at a double-digit pace through 2012. That expected growth is, in part, the result of debit breaking ground in merchant segments that were previously open only to cash. The convenience, security and increased acceptance of debit cards at what were once cash-only merchants–like fast food restaurants, movie theaters and convenience stores– are making it easier to use debit cards in even more places. With the popularity of debit cards on the rise, credit usage in their debit portfolios, ultimately optimizing performance and more effectively serving their debitcentric members. Consider the best practices outlined below when reviewing the success of your program. Identify key customer segments within your portfolio and the behaviors that motivate them to use debit over other payment alternatives. By knowing and targeting cardholder segments, you can tailor offers, products and pricing while staying focused on those customers most likely to create incremental business. For example, light debit users (those who use their card four to six times a month) tend to use debit at traditional locations, such as gas stations and grocery stores. These cardholders should be provided with communications that identify new debit acceptance locations (such as bill payment, discount stores and pharmacies) as well as spend and get incentives to promote additional transactions. Active debit cardholders are less likely to close their demand deposit account, resulting in increased cardholder loyalty, stronger relationships and higher revenue. Increasingly, rewards have become a critical point of entry for card programs. By offering rewards for debit card spending, credit unions can increase cardholder loyalty and spending and further differentiate themselves from competitors while providing members with benefits that checks and cash don’t offer. A recent study by Card Services for Credit Unions, the credit union industry’s largest card processing association with more than 3,300 members, found that credit union credit card portfolios with rewards experienced, on average, 17% higher average account growth, 28% higher usage and 18% higher total revenue per account than those portfolios without rewards. A variety of turnkey rewards platforms are available to debit issuers today. These programs can simplify the rewards implementation and maintenance process for credit unions, providing a seamless and integrated solution to enable your members to earn and redeem points toward meaningful merchan- Special Report Opinion One of the most important ways to optimize your debit portfolio is to compare your performance with that of your peers. By measuring how your institution performs against three key industry metrics you can better gauge opportunities for growth. —Stacey Pinkerd unions have a unique opportunity to deepen their member relationships, create differentiation and drive Stacey Pinkerd is the head of global consumer debit products for Visa Inc. He can be reached at 650-432-3200 or spinkerd@visa.com dise, such as gift cards, restaurant meals, travel-related goods or tickets to sporting events. A relatively small investment in a debit rewards program can pay dividends in increased usage and enhanced customer loyalty. One of the most important ways to optimize your debit portfolio is to compare your performance with that of your peers. By measuring how your institution performs against three key industry metrics–penetration of debit cards in deposit accounts, activation of cards and card usage–you can better gauge opportunities for growth within your organization’s existing debit portfolio and identify opportunities to convert cash and check spending to debit. Consider benchmarking your portfolio’s performance against the Visa system averages show in the accompanying table and strive to surpass these metrics to realize greater results Following an analysis of your portfolio, build an actionable plan that enables your institution to meet your penetration, activation and usage goals cost effectively. Use turnkey tools and promotional materials provided by organizations such as Visa to stretch your marketing dollars while effectively meeting your business objectives. In a world where payment products are increasingly viewed as commodities, the depth of your relationship with a customer can make all the difference to a portfolio’s success. Debit programs can be critical tools in reinforcing the already strong relationships between credit unions and their members, if executed strategically. Issuing Cards to the Underserved WASHINGTON — A coalition of minority groups, card issuers and business organizations has issued a proposal to keep the needs of lower income consumers for affordable credit from being swallowed up in consumer protection regulations. The Citizens for Equal Access to Credit proposal consists of a statement of principals aimed at legislators and regulators and a code of practices aimed at card issuers. The statement of principals seeks to educated legislators, regulators and the public at large about the goals and concerns of lower income consumers seeking credit, while the code of practices seeks to reform some of the practices of issuing cards to lower income consumers. The CEAC statement of principals said that that the federal government “should understand, and remain sensitive to the reality that low-limit cards represent a bridge to the economic mainstream for persons from underserved and unbanked communities.” The principals also said that the federal government should understand that requiring otherwise qualified applicants to pay a significant portion of credit card fees upfront would have an adverse impact on access to credit for persons from underserved communities. The federal government should act to protect consumers by requiring credit providers to meet high standards in disclosing obligations to consumers and affording customers flexibility in making payments. However, these efforts should be balanced to ensure that access to credit for minority and underserved communities is protected, CEAC concluded. “We fully support the efforts of regulators to protect consumers, but we definitely want to make sure lower income people keep access to credit,” explained Earnest Baynard, spokesman for the group. Baynard admitted that much of the group’s effort is aimed at protecting the ability of card issuers to risk-based price their cards. The group fears that if they are prevented from doing so, or if lower income consumers are forced to put up sizable fees up front when they open accounts, access to the cards will dry up. “Seventy million people in this country could not qualify today for a prime rate credit card,” Baynard said. “That’s one in three consumers. Those people need to have a voice in this process,” he added. cutimes.com Credit Union Times, October 1, 2008 21 http://www.cutimes.com
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