When it Comes to Debit Cards Credit Unions Use a Carrot Vs. a Stick
By Gina Ragusa Credit Unions Online
While the big banks are charging consumers to use their debit card, credit unions are offering rewards --no fees attached. In light of the recent Bank of America $5 debit card fee, many credit unions are shining the spotlight on their debit card rewards programs as members continue to flock to credit unions across the country.
From earning points for signing instead of using a PIN to simple cash back programs, many credit union executives say that a debit card rewards program not only provide value to its members, but helps drive profitability.
According to Carol Sundberg, SVP/Payment Services at Delta Community Credit Union ($4 billion, Atlanta GA), debit card rewards have increased usage and loyalty.
"The program was initially offered in 2004 and in addition to increased interchange revenue, we firmly believe it is helping to drive growth and loyalty in our checking product," Sundberg explains.
Since rollout, Delta's overall usage has gone from 13.3% in 2005 to 23.8% today. Penetration increased from 57.36% in 2005 to a whopping 78.6% this year.
Sonya McDonald, SVP/Market Development for Randolph-Brooks Federal Credit Union ($4.5 billion, Live Oak TX) says her credit union is experiencing similar success, especially after increasing its cash back reward amount from 10-cents to 15-cents-per-transaction. "We have broken all the previous records for new accounts."
"The 15-cent reward has triggered a surge in debit card usage," she says. "During the first week following the promotion, we've seen almost a 10% increase in debit card transactions, which signifies members' excitement over the promotion. We have very good debit card penetration and usage overall, so a 10% jump in transactions means both that we're bringing in new members and that current members are changing their spending habits with other cards to use their RBFCU Freedom Check Card."
Members Can Find a Smattering of Different Reward Options
Every credit union debit card rewards program is unique and offers different types of rewards ways to earn them. For example, Mobiloil Federal Credit Union ($400 million, Beaumont, TX) offers a coupon rewards system where the member is presented with a special online coupon for debit card use.
George Perrett says that Mobiloil's Purchase Rewards program has been a good way to help members save a tremendous amount of money. "The members love it, it's easy to use and the rewards are preloaded onto your debit card once the offer is activated."
After the member uses his or her debit card, special online and in-store offers are delivered to the member's online banking system. If the member likes an offer, he or she can activate it by simply clicking on the icon and the discount/offer is preloaded onto the member's debit card. The next time the member shops at the merchant, restaurant or retailer the discount or offer is automatically applied.
"Just looking at my Purchase Rewards right now I see that I can take advantage of new offers including 20% at Home Depot, 20% at Sam's Club and 20% at 7-11."
While Mobiloil's members are saving money every time they shop or dine out, Randolph-Brooks' members are earning cash.
"Members earn 15-cents every time they use their debit card and they receive their annual rewards earnings in a lump sum in early February," McDonald says. "We expect to pay out about $7 million with our program this year, the highest amount in program history." McDonald says that in the first year alone, the credit union gave members more than $3 million. In the past four years, more than $15 million in total rewards have been paid.
Another type of rewards program is through a point system where the member can accumulate points for gifts and even cash. "We spent several years looking for the right program and the right partner to administer it." Sundberg says, "We had very specific requirements. Our Rewards program is offered at no charge through both our credit and debit cards."
"We also use it to promote other products and services on occasion through the issuance of 'bonus' points. The 'earn' is one point for every $1 spent on credit cards and one point for every $2 spent on debit cards for non-PIN based transactions. There are no points earned for debit PIN based transactions. From the onset it was important that a variety of redemption options be available. We currently offer cash back, air travel with no black-out dates, electronics and merchandise, gift cards of all types and 'experience' certificates like hot air balloon rides, white water rafting and more."
Credit Union Rewards that Gives Back to Schools
In the true spirit of "people helping people," some credit unions are leveraging their debit card rewards program to promote giving. For example, Texas Trust Credit Union's ($680 million, Mansfield, TX) Spirit Rewards program helps members earn money for their local schools through debit card usage.
Amber Danford, VP/Marketing and Public Relations says that after local schools lost a tremendous amount of funding, the credit union wanted to take action to help maintain and support existing programs.
"We wondered what Texas Trust could do to help crisis in classroom. We offer financial education workshops for teachers who were laid off and some transitional services, but we wanted to do more."
She says that the credit union is extremely active in the schools and has two in-school branches, in addition to hosting a line of Spirit Debit cards.
Spirit debit cards allow the member to proudly display school spirit. "The member can either create a customized design or choose from one of the existing Spirit designs."
Danford says that brainstorming led to the creation of Spirit Rewards. "Whenever the member swipes his or her Spirit debit card, 15-cents goes to the member's school." For example, if the member's debit card is sporting the Athens Independent School District design, the money automatically goes to Athens ISD.
The program launched in August and although Danford has only started marketing it, members are excited. She says that one of the biggest reactions she receives is wonderment from members. "They tell me that they can't believe that while the large banks are charging fees, we are actually giving money."