Fundamental Rules of Effective Debit Promotions

by: Dan Lozier, Director of Client Relations, TMG

Even though consumers may find it confusing to keep track of multiple checking accounts, most Americans still have more than one. To best manage their money within these accounts, checking accountholders typically choose one account for most day-to-day purchases, as well as to pay their bills and direct deposit a paycheck. This primary checking account is where most of a person’s day-to-day transactions take place.

This account also does something else — it determines how a consumer will define his primary financial institution.

In the past, people opened checking accounts at brick-and-mortar financial institutions where they also had other business, like a savings account or home mortgage. Today, fewer people believe one financial institution can offer the best options for all their banking needs.

Savvy consumers today aren’t afraid to shop around for the best deal, looking for the financial institution that will pay the highest interest rate and charge the lowest fees. They also look for a financial institution that will minimize or eliminate ATM fees, free them up from account minimum fees and protect them from high overdraft fees. As well, they are searching for a financial institution with products to make life easier.

In addition to scrutinizing the rates and fees, consumers also pay attention to promotional programs, such loyalty programs, VIP benefits and all-inclusive offers. This is true not only for attracting new members, but for increasing engagement with existing ones, as well. While fair fees are incredibly important, promotions are another area in which credit unions can distinguish themselves from the competition.

Yet they must be done right. The No. 1 indicator of loyalty to a checking account is point-of-sale activity on the debit card. For that reason, successful checking account promotions center around the debit card. And, when it comes to debit card profitability, the name of the game is transactions — the more a debit card is used, the deeper that relationship becomes.

Effective debit card promotions generally focus on at least one of these three objectives:

1. To inspire inactive cardholders to use their debit cards for at least a few transactions a month
2. To encourage light debit cardholders to transact more frequently, and to offer incentives that can transform them into a heavy user
3. To maintain satisfaction for established heavy users

Needle-moving debit card promotions also work to impact purchase behavior. Credit unions looking to improve the profitability of the debit portfolio work to transition traditional debit transactions, such as gas station, dry cleaners and fast-food, into new transaction areas, like sit-down restaurants, department stores, grocery stores and other places where purchase amounts tend to be higher.

Another part of a successful debit card promotion program is simplicity — offering an incentive that is easy to achieve and doesn’t aim too far from a cardholder’s existing behavior. For example, Belvoir Federal Credit Union recently used a promotion called SwipeStakes to incent cardholders to make tiny adjustments in their everyday purchases.

Each time a cardholder used his or her debit card to pay for a transaction of $5 or more, he or she received one entry into the SwipeStakes contest — as long as he or she had signed the receipt for the purchase, sending the transaction down signature debit rails and earning more revenue for the credit union.

Belvoir Federal’s strategy with this promotion was to change cardholder behavior on two fronts:

1. Encourage cardholders to consider debit for more than micro-payments, thus the $5 minimum purchase requirement
2. Change behavior away from PIN and toward signature, resulting in higher interchange income for the credit union

Belvoir Federal crafted the promotion specifically to drive signature-based debit card transactions, and they were successful at doing just that. The credit union not only realized an increase in overall transactions but also achieved a notable increase in signature-based transactions.

After the two-month campaign ended, Belvoir Federal saw on average a 7-percent lift in overall transactions. As well, the portfolio achieved a 10-percent increase in signature-based transactions with a 9-percent bump in signature-based transactions of more than $5.00. There was also an average 3-percent boost in debit cards with at least one transaction.

Among the reasons Belvoir Federal’s SwipeStakes was successful is because it followed two fundamental rules for effective debit promotions:

• The promotion targeted a specific period of time for qualifying purchases
• The rules were simple
• The promotion zeroed in on signature-based transactions

As Belvoir Federal demonstrates, the benefits of a successful debit card promotion for credit unions are two-fold: 1) Cardholders transact more frequently, and 2) The average purchase amount is greater, both of which result in increased interchange income for a credit union.

The obvious advantage to increased transactions is the interchange income gained, but there is also the additional benefit of cross-selling opportunities. Simply put, members are often more open to considering other banking products, such as auto loans or credit cards, from the financial institution where they have their primary checking account.

The key going forward will be for credit unions to advocate members’ debit card usage through multiple promotional programs. Credit unions can no longer afford to simply have one promotion each year. Those cooperatives that continuously remind members why their credit union debit card should be their card of choice will be the most successful.

Dan Lozier is director of client relations for The Members Group (TMG). He can be reached at danl@themembersgroup.com.  www.themembersgroup.com