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2016 Debit Issuer Study, Pulse

Debit interchange is one of the key fee income drivers, especially for community banks. But many institutions struggle to find strategies that fuel revenue growth, especially as merchants become more sophisticated in directing debit transactions to lower cost PIN vs. signature.

 

In today’s environment are debit rewards programs successful in stimulating demand? Can they help you jump-start performance? Is there sufficient payback after expenses are considered?

 

We believe there are more effective ways to improve debit revenue.

 

Rewards programs reached their peak in 2009 when they were offered by 58% of financial institutions. This dropped to a low of 32% in 2012, before stabilizing at 38% during the past two years. The decline in rewards programs gives us a test case to measure effectiveness. What happened when rewards programs were discontinued? Are the banks with the highest debit revenue generation offering rewards, or are they improving revenue through other means?

 

There are 3 drivers of debit revenue: penetration, activation, and usage

 

  • High performing institutions have significantly higher penetration of their customer base – more customers have cards, and are active. At the top quartile of performance, 92% of customers have a debit card. This compares to the average for all financial institutions of 77%, and only 62% for the bottom quartile.

 

  • We often hear that “many customers don’t want a debit card” or that “many of our customers don’t qualify for a card”.  But top performers have demonstrated that high penetration is possible. If customers don’t have a card, they can’t use it.

 

  • Best in class banks encourage their customers to use their cards more. At the top quartile, active cardholders use their card 31 times per month, vs. an average of 22 for all institutions, and a low of only 14 times per month for the bottom quartile of performers.

 

Data analytics is key to improving usage. Well performing institutions understand who is using their card, and where they are using it. They have programs to target activation (get non-users to make at least one transaction), and to encourage users to transact more (“you used it at the gas station, now try it at the supermarket”).

 

What about rewards programs? The decline in rewards participation is driven by the recognition that most customers receiving rewards are already predisposed to debit use. When programs were discontinued there was no significant diminishment in activity – certainly not enough to offset the savings from program management.

 

Instead of the highest users, spend your time and energy to identify non-users, or low users, and incent them to increase activity.

 

Remember PAU (Penetration, Activation, Usage) and establish metrics to measure, monitor – and improve – performance.

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