The key to post-pandemic success for debit

A seismic shift is underway when it comes to member payment preferences, particularly as it relates to debit and digital payments. Debit has seen an impressive resurgence through the pandemic, helping to reposition checking at the pinnacle of the consumer payment relationship. The time is now for credit unions to cement their role as the primary financial institution (PFI) by adapting to this shift, capturing account growth and facilitating mobile and digital wallet options for their members. 

Debit by the Numbers

Several findings from PSCU’s weekly COVID-19 transaction trends analyses give credence to the surge in debit and its importance to credit union success and growth:

• Double the growth rate – Debit purchase volume growth is currently trending in the teens through August, over twice its historical 7% mark.
• Strongest growth in CNP – Debit usage for card-not-present (CNP) transactions – including online purchases, recurring payments and digital wallets – is seeing significant growth.  Since mid-April, debit CNP growth year-over-year has averaged over 40%. 
• Historical cash transactions flowing to debit – ATM withdrawal volume remains down over 20% year-over-year, while a national shortage of coins is testimony to the reduced flow of cash usage for transactions. According to the Fed’s 2019 Diary of Consumer Payment Choice, 80% of cash transactions are under $25. Given this small ticket size, the majority have likely flowed to debit.    
• More cards in use – A typical credit union portfolio has three times as many debit cards as credit cards, with each card conducting over three times as many transactions. Account acquisition is also multiples higher. This underscores the magnitude of debit as a payment vehicle and its importance to the credit union.

Debit and Checking Growth Opportunities

PSCU’s Advisors Plus consulting team has identified four areas of focus credit unions should pursue with respect to debit and checking:

Capitalizing on Digital Payments

The growth of remote or CNP payments has averaged over 40% during the pandemic, as compared to the mid-teens before the pandemic. This makes it more critical than ever to obtain top-of-wallet position for members’ debit cards.

Amazon, the clear e-commerce leader, has seen consistent year-over-year debit growth of more than 80%. Money services as a merchant category is also growing at a similar rate and includes person-to-person transfers and remittances. The recovery of quick service restaurants (QSR) has been faster than full-service restaurants, thanks in large part to their drive-thru option and food delivery services like DoorDash and Uber Eats. For successful credit unions, capturing this volume creates an “annuity” of transactions that will have a long-term impact.

Nothing may be more imperative than keeping the debit card top of wallet among the many digital wallets in the market, including mobile apps and P2P platforms. This will require constant communication among credit union members and staff. Creating awareness of these offerings through various communication channels, member incentives, and staff training is key.

Leveraging Contactless Opportunities

Now is the time for credit unions to leverage contactless opportunities. Numerous studies confirm an increased desire among consumers for touchless payment options like contactless. Data from PSCU’s weekly analyses supports this, with strength in remote/CNP transactions, declining ATM cash withdrawals and growth in contactless products such as dual-interface cards and mobile wallets. Credit unions should consider the issuance and promotion of contactless cards and mobile wallets (“Pays”).  

Reinvigorating Checking Account Growth

While debit volumes have trended upward overall, there has been a recent slowdown in checking account growth due to the pandemic, driven by reduced branch hours, closures and inadequate online account opening solutions. Many credit unions have also moved away from free checking, which could make them less appealing than competitors.

PSCU’s analysis indicates that checking growth drives almost half of debit volume growth, in addition to new member growth. Successful credit unions have capitalized on this event. For some credit unions, this increased focus on checking has been internal – like employee incentive enhancements and more rigid tracking around active account growth – while others have focused on external promotion to members – including advertising and direct mail with incentives for new accounts. A combination of both strategies is critical.

The design of the checking account can also have implications. Some credit unions continue to focus on dated accounts named “regular” or “golden” checking, with features that no longer resonate with the overall market, such as free money orders or free notary service. Others are adding fees in search of profitability, at times with ancillary benefits like cell phone protection or identity theft services. This transition has been tough, especially when existing members are impacted. Credit unions need to validate the strength of their solutions against their competitors, their target market, and their existing member base.

Enhancing Checking Account Connectivity

The checking account gives consumers broad access to a variety of services. Online banking and mobile deposit capabilities were critical in allowing credit unions to close branches while still servicing members during pandemic shutdowns. Direct deposit is the rocket fuel that makes debit run, as evidenced by the fact that debit growth turned positive when COVID-19 stimulus checks were directly deposited into checking accounts. Credit unions should increase focus on these services, continually soliciting enrollment and working to ensure members and staff understand their capabilities.  

Credit unions that adapt to the changing payments landscape and facilitate mobile and digital wallet options for their members now will see rewards well into the future, regardless of what it might hold.