Don’t Forget Debit

woman’s hand holding up a fuchsia debit card
By Tom Bennett

7 minutes

The trends suggest these card programs are poised to help drive credit union growth and revenue in 2023.

In the ever-evolving financial services industry, it is easy for legacy programs—like debit cards—to fall out of sight and out of mind when thinking about the future. When looking to 2023, however, debit is poised for success, and credit unions would be remiss to overlook it as an important driver of growth and revenue in their planning.

The Current Landscape

For the fourth year in a row, debit is the preferred way to pay, according to PSCU’s 2022 Eye on Payments study, with CU members favoring debit cards (46%) slightly more than non-CU members (42%). Moreover, debit cards were reported as the clear choice for every purchase type from full-service restaurants to local retailers, pharmacies and grocery stores. At the same time, debit activity has returned to typical growth rates in 2022, per PSCU’s monthly Payments Index. From January through October 2022, debit purchases were up by 5% year over year, while debit transactions were up by 3%.

To plan for 2023, let’s first look at historical data. Year over year, debit experienced steady, predictable growth of 5% to 7% across both purchases and transactions. 2020 started with a similar growth trajectory but stalled with COVID-related business closures and lockdowns—then rapidly accelerated thanks to economic stimulus payments and concentrated consumer spend on key debit categories like groceries. As a result, May through December 2020 saw double-digit growth in debit purchases, resulting in total year-over-year growth of 11%. In 2021, we saw even stronger success on the debit front, reaching 19% growth in purchases as consumers spent two additional economic impact payments and the country began to reopen. While debit experienced record growth during these two years, it has made 2022’s growth appear smaller and questionable in comparison—when, in reality, it is noteworthy that debit has continued to increase this year without the economic impact payments seen in 2020 and 2021.

For credit unions, a focus on debit can not only increase revenue but also act as a frequent touchpoint with members.

What to Expect in 2023

All of this brings us to 2023. Debit volume has normalized, and with several positive tailwinds heading into next year, PSCU expects to see debit volume growth increase over 2022 based on several factors.

First, it’s clear consumers like and trust debit as a method of payment. According to Eye on Payments, debit is the most preferred payment method among every generation, except baby boomers, who prefer debit and credit equally at 39% and 40%, respectively. Sixty percent of CU members agree or completely agree they use their debit card more frequently than they did a few years ago, with a majority reporting they turn to debit because it is easy to use (60%) and convenient (57%). In addition, 83% of members said they would be likely or extremely likely to use a debit card at some point in the next six months to pay for goods and services.

A major development during the pandemic was the growth in debit for card-not-present transactions as consumers were forced to adopt new shopping styles. CNP debit activity has flourished, from mobile wallets to card-on-file, store-specific mobile payment apps and digital solutions. Before 2020, CNP represented 24% of debit transactions. By April 2020, it reached 35% as consumers ordered groceries, food and household goods online with either scheduled delivery or curbside pick-up. Fast-forward to today, and even as card-present activity has returned, 33% of debit transactions remain in the CNP space. Similar behavior, like consumers’ propensity to utilize digital payments solutions, has experienced similar growth: 59% of all respondents in Eye on Payments report using digital payment methods like Venmo or PayPal at least periodically, a 40% increase since 2019. We expect the CNP space to continue to see further growth.

There also is an opportunity for further cash displacement in the new year. According to Visa, the percentage of transactions facilitated with cash decreased from 21% in 2018 to 15% in 2021. Today’s consumers are using a wider variety of payments. In fact, Eye on Payments saw choice and variety emerge as important factors driving payment choice. A majority of consumers (61%) said they are using more payment methods than they did a few years ago. But as mentioned, consumers aren’t just reaching for their traditional wallets: Approximately four in 10 expect to use their mobile wallet or store-specific mobile payment app to pay for goods and services in the next six months. While not all of these solutions are CU offerings, these transactions still occur with either a debit or credit card on file. Corresponding to this uptick in digital payments solutions was a 30% decrease in cash as the first preferred payment method since the 2018 Eye on Payments study. 

An increased interest in tap-and-go and contactless offerings are also good for debit programs. According to the same study from PSCU, 87% of respondents are using their contactless card at least a few times a year. In addition, 35% of consumers report they prefer tap-and-go technology. PSCU’s monthly Payments Index also found that one in four CP debit transactions are contactless. While the average debit transaction is $45, the average tap-and-go transaction is $25, suggesting small-dollar cash transactions are more likely to be displaced by debit cards.

Finally, several new use cases favor debit as we look to next year and beyond. Buy now, pay later, subscriptions and gambling have all seen more transactions and purchases via debit and are poised to see further success with debit cards. Over 90% of volume among BNPL solutions is cleared via debit, while a majority of subscriptions for games, streaming and other offerings are typically paid with debit cards. Gambling is also now legal in 23 states and growing, with debit generally being the card on file and, again, displacing cash in many scenarios.

Opportunities for Credit Unions

For CUs, a focus on debit can not only increase revenue but also act as a frequent touchpoint with members. An elevated and enhanced debit program can also help with member growth and retention. It is important for CUs to evolve with existing and potential members. As consumers seek variety, choice and personalization, it is no longer enough to focus on share of wallet. Consumers now expect the highest level of service and variety of offerings, and they want different channels in which to make purchases, transact and interact with their financial institution, among other activities. CUs should make an effort to understand what payments offerings and services are of interest to their current and potential members.

Increasingly, consumers are using fintechs and other banks, such as neobanks, for some of their everyday payments needs, which puts CUs at risk of losing out on share of mind and wallet. It is more important than ever to meet members where they are, while also providing an exceptional experience in the channels of their choice.

Similarly, CUs need to deliver on the member experience, especially in the digital space. Consumers are prioritizing frictionless experiences that are easy to use, convenient and fast. Make sure your CU prioritizes these factors. CUs should also explore digital account opening and digital issuance capabilities that make it possible for members to transact seamlessly with their CU-issued card.

CUs also must track the economy. As the Fed tries to stamp out inflation, such debit categories as gas, groceries and dining are being impacted. This could be an opportunity for CUs to help members improve their financial health. CUs have access to data, community connections and tools like behavior modification alerts they can leverage to members’ benefit. In keeping with this, debit can be a great budgeting tool to offer them.

Debit programs are well-positioned to drive CU growth and success. Consumers like and trust debit, plus it is an easy-to-use, convenient option that has the breadth and depth to be used across almost any channel. Today’s economic and financial services landscape is a ripe environment for debit to grow and thrive alongside your members.  cues icon 

Tom Bennett is a principal consultant with the checking and debit card practice at Advisors Plus with over 30 years of experience in the financial services industry. Bennett advises credit unions on ways to enhance portfolio growth, performance and profitability. The parent company of Advisors Plus, PSCU, is a CUESolutions provider. 

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