As I’ve traveled around the U.S. the last 15 years talking with credit unions of all sizes, the one topic that causes CFOs to grab their heart medication is offering a rebate/cashback on debit cards. The CEOs are usually willing to listen, but those CFOs can be a paranoid group. While many credit unions offer rewards on credit, few people fully understand how advantageous a rebate/cashback program on debit can be.
Reinforcing member loyalty
Most credit union members qualify for a debit card, but not all qualify for a credit card. Offering rewards on debit cards incentivizes those members who didn’t qualify to stick around. Some credit unions will then offer those rewards on debit for six months, but then try to encourage the member to apply for a credit card after those initial six months. While debit cards can be profitable, credit cards are the #1 earning asset in the credit union. So, the theory is simple: offer debit rewards to entice the member, but switch them to a credit card to collect a higher interchange, which will generate more revenue.
Staying competitive in a stressed economy
For the past two years, debit card usage has leveled off. Right after the economy tanked from 2008-2012, debit card usage increased by more than $40 billion. Many users of plastic turned away from credit cards, and credit unions found the competition for the debit cards was fierce. This led to the rise of rewards, especially rebate/cashback on debit.
Many credit unions, in fact, still offer the standard 1% rebate/cashback. Other financial institutions will vary their percentage, i.e. maybe 2% on restaurant purchases. Some will make certain restrictions such as monthly minimums, whether it’s monthly minimum on transactions or dollar amount. But we have found the most successful credit unions keep it simple, offering the standard 1% rebate/cashback. The only restriction we most often see is that the member must have direct deposit to have access to the debit rebate/cashback.
Giving back to the owners
Diversified Members Credit Union, located in Detroit, Michigan, has offered a debit rebate for almost two years. In just the last year, they’ve given back over $100k to their debit card users. They found that some members did not qualify for a credit card, but the credit union still wanted to reward their valued members with this debit rebate card.
According to CFO Kevin O’Connor, educating the members is the key. Marketing Manager Colleen Scott agrees saying, “We want to be their primary financial institution, and offering an attractive debit card is a great first step.” Diversified Members realizes that with more debit card usage, the more interchange income is generated for the credit union.
It’s not all about the revenue though; it’s about building a strong relationship with the members. As both Kevin and Colleen emphasized, “We are a member-owned financial institution—it’s important that we give back our earnings to members, and this is just one of the many ways we do that.”