It did not take the big banks long after Oct. 1, the effective date for new Durbin Amendment-mandated debit interchange rates, to start "experimenting" with monthly debit card usage fees.
Bank of America has announced its plans for an over-the-top $5 per month fee starting next year, with several other banks either planning or already implementing monthly fees in the $3-$5 range. And Citibank wants to have it both ways - stating it will not implement a usage fee, but hiking basic checking service charges from $8 to $10 per month, and introducing stricter fee waivers.
The large financial institutions (more than $10 billion in assets) subject to the Durbin Amendment rates have little choice in order to maintain their earnings. However, several news outlets have documented very well the palatably angry public reaction. A recent article in the Wall Street Journal quoted consumers complaining of being "gouged," and consumer advocacy groups are advising people to "shop around" if they're tired of being "nickel and dimed" by their banks.
This big bank behavior presents a very rare opportunity for credit unions to dramatically grow their checking accounts by helping consumers move their business to an exempt credit union (under $10 billion in assets). Analyzing the new rate information from VISA and MasterCard, and expecting merchants to negotiate lower rates with networks, CO-OP believes overall interchange could go down by as much as 20 percent. This impact must be overcome through growth.
So, now is the time to market aggressively to members and non-members alike, making the case for your credit union to become their primary financial institution.
Four Steps To Take
There are at least four steps we recommend to credit unions to take advantage of this unique opportunity.
1. Data mine to grow checking. The biggest opportunity for credit unions is to do some data mining on their current members who do not have checking accounts. Credit unions need to communicate directly to these inactive members, prompting them through rewards, incentives and promotion to open checking accounts.
In addition, portfolio management tools such as CO-OP Total Revelation will help you understand how your members are using your payment cards, if they already have checking accounts. For example, you can identify members who are only using their credit union debit cards for small-ticket purchases and offer incentives for large-ticket transactions, which in turn will increase usage and profitability.
2. Credit unions are different from banks! It is time to stress the credit union difference in advertising and marketing support materials to members and non-members alike. Among the important things that differentiate credit unions from banks are better rates on loans, more personalized service and, especially, fewer fees.
There is another important differentiator that goes to the core of what the credit union movement is all about. Most of the banks' reported new monthly debit card usage fees are weighted towards smaller accounts, with "premium accounts" - those with high balances - often exempt. Credit unions work to improve the financial lives of their members, many of whom are people of modest means - and small deposit balances. There has never been a better time to reach out to this market segment with renewed emphasis.
3. Acceptance at POS. Credit unions also need to stress acceptance at point-of-sale of credit union-issued credit and debit cards, to address any possible uncertainly among members and potential members. With the many landmark and complex changes in the regulation of financial institutions, there may be some uncertainty among your members as to whether or not their credit union-issued card will be accepted at the point of sale. Credit unions should be educating members, letting them know that their cards will be accepted by merchants just as before, and that this is written into the regulations.
4. Stress credit union convenience. Credit unions need to counter the claim of banks that they hold a customer convenience advantage by underscoring that the credit union movement has a nationwide network of ATMs of its own, as well as a nationwide network of shared branches.
CO-OP Network encompasses 28,000 ATMs providing surcharge-free access to member accounts, 9,000 of which take deposits. In addition, CO-OP Shared Branching has now surpassed 4,400 locations. With the pending combination of CO-OP and Financial Service Centers Cooperative's operations, announced last month, credit union shared branching services will be offered with even greater efficiencies in branding, technology and administrative support.
With the passing of the Oct. 1 milestone for interchange rates, we find ourselves in a strong competitive position. Consumers are going to leave their banks. Let's make sure we help them.
Stan Hollen is president and CEO of CO-OP Financial Services.