By: Tom Bennett, Principal, Advisors Plus Consulting
In a previous blog, “How COVID-19 Has Elevated the Role of Debit and Checking,” I shared my perspective on the stunning growth of debit cards and their underlying performance factors, and how checking is once again at the pinnacle of the account relationship. As we continue to see a rise in debit volume during the pandemic, the payments industry is projecting an equivalent transition of three to five years of growth for remote payment options, including online transactions, digital wallets, mobile adoption and others.
While many of our Owner credit unions are seeing record debit growth, it is important to recognize that the growth differential between our top- and bottom-third credit union debit portfolios has expanded significantly as pandemic recovery continues. This is concerning, as it likely signals a challenge for some credit unions to capture the consumer transition to a digital-first payment environment.
Based on the experience of PSCU’s Advisors Plus consulting team in the market, we’ve identified some areas of focus that credit unions should pursue now with respect to debit and checking: reinvigorating checking account growth; capitalizing on digital payments; leveraging contactless opportunities; and managing checking account connectivity.
Reinvigorating Checking Account Growth
While debit is trending upward overall, we’ve seen a recent slowdown in checking account growth due to the pandemic, driven by reduced branch hours and closures, as well as inadequate online account opening solutions. Additionally, many credit unions have moved away from free checking and added fees or other nuances to cardholder accounts, which is impairing their competitive position.
The best credit union debit growth performers have intentionally restarted checking growth. Our analysis suggests that checking growth drives almost half of debit volume growth, and – just as importantly – drives new member growth and the critical transaction account. For some credit unions, this increased focus on checking has been internal, with employee incentive enhancements and more rigid tracking around active account growth. Others have focused on external promotion to members, with advertising and direct mail offers for new accounts. Each credit union is different, but what we do know is that a combination of internal and external strategies will be needed to reestablish checking account growth.
For many credit unions, a checking product review is in order. Today, we’re seeing two extremes: some continue to focus on dated accounts called “regular” or “golden” checking, with features that no longer resonate with the market, such as free money orders or free notary service. Others are adding fees in search of profitability, and have not successfully made the transition. Credit unions need to validate the competitiveness of their solutions against the market of local, regional, national and digital providers.
Regarding fees and their impact on checking, credit unions have provided much goodwill to members during the pandemic, by means of temporary account waivers and reductions of maintenance fees, qualifying requirements, reducing/waiving NSF and overdraft fees, etc. In fact, some of these credit unions have decided to make the changes permanent based on member feedback and performance. As part of the broader checking review, fairness, simplicity and transparency to members should be top of mind.
Capitalizing on Digital Payments
As defined by the Fed, remote payments are “those made when the payer is not in physical proximity to the payee, for example, using a card number at an e-commerce or bill-pay website, providing a card number over the phone, or shopping via a mobile app.”1 Before the pandemic, this category was growing in the mid-teens from a percentage perspective. During the pandemic, this growth has averaged over 40%, showing it is more critical than ever that your member’s debit card is top of wallet among the variety of digital payments.
Amazon remains the behemoth in digital commerce. While their volume was once monopolized by credit, debit is showing greater success. Throughout the pandemic, we have seen consistent year-over-year debit growth of more than 80% for Amazon. Money services as a merchant category is also growing at a similar rate and includes person-to-person transfers and remittances. As quick service restaurants (QSR) have established alternatives to in-person dining, primarily via the drive-thru, their recovery has been swifter than restaurants. This merchant category has also been aided by the adoption of payments tied into food delivery services as consumers use mobile wallets for DoorDash, Uber Eats, and other food delivery services. Ironically, in their quest to survive, merchants have even been paying consumers to link a card to their digital wallet to place orders. For successful credit unions, this creates an “annuity” of transactions that will likely have long-standing impact into the future.
Nothing may be more imperative than keeping the debit card top of wallet among the many mobile wallets in the market, including mobile apps and P2P platforms, which will require constant communication between credit union members and staff. Creating awareness is a key component, whether it’s via your website, social media or other communication channels. For some, member incentives (reward points or cash) may be useful to get a card in wallet. Credit union staff training on digital wallets would also be helpful in assisting members, as well as using analytics to determine and manage enrollment trends.
Leveraging Contactless Opportunities
Numerous market studies confirm consumers’ desire for contactless transactions in the pandemic environment. Consumers want to transact safely, and for many this means swapping less cash and more digital payments. Data from PSCU’s weekly transaction trend analyses supports this, with strength in remote (card-not-present) transactions, declining ATM cash withdrawals and growth in contactless products such as dual-interface cards and mobile wallets. Now is the time for credit unions to leverage these contactless opportunities, especially in the current touchless environment.
Managing Checking Account Connectivity
On a broad scale, credit unions should be maintaining overall connectivity of the checking account for profitability in the long term. Historically, we’ve seen 50-60% penetration rates on e-statements for checking accounts. Today, there are few reasons that percentage rate can’t be more like 90%, as converting from paper is another contactless opportunity for members, and would increase cost savings for credit unions.
Additionally, it is not a coincidence that debit growth turned positive when stimulus checks were directly deposited into checking accounts. Direct deposit is the rocket fuel that makes debit run. Credit unions should continually solicit enrollment for both new and existing accounts.
Finally, online banking and mobile deposit capabilities were critical in allowing credit unions to close branches for weeks during pandemic shutdowns while still servicing members. Ensure your credit union offers these capabilities and that your members and staff know how to use them.
Adapting to Member Payment Preferences
A glacial shift to debit is underway, particularly with digital payments. Credit unions have the opportunity to cement their role as primary financial institution (PFI) by adapting to this shift and facilitating mobile and digital wallet options for their members. Those that take advantage of this transition will see rewards well into the future.
Tom Bennett is a Principal Consultant with the Checking and Debit Card practice at Advisors Plus. Tom advises credit unions on ways to enhance portfolio growth and profitability through P & L and key metric performance analyses, competitive product assessments, and industry and peer benchmarking reviews. His combination of consulting knowledge and direct experience provides an informed and unique perspective to solve the challenges of our clients.