The Case for Promoting Debit Cards: Why They Are Still a Growth Product

The Case for Promoting Debit Cards:
Why They Are Still a Growth Product
FIS Research Brief
February 2013

www.fisglobal.com


Introduction
While debit cards have been commonly used to make consumer retail purchases for more than a decade, many
financial institutions may have placed less priority on their debit card business in wake of regulatory changes.

After rapid annual growth over the past decade, growth appears to have plateaued for many institutions in the
last year or two. According to the Federal Reserve Board and CEB TowerGroup, debit card use grew from 8.3
billion transactions in 2000 to 46.7 billion in 2011 – an average growth of about 19 percent annually. There was
a corresponding growth in debit volume from $300 billion in 2000 to $1.8 trillion in 2011 – about a 20 percent
annual gain (see Figure 1). 1

Figure 1: U.S. Debit Card Transaction and Dollar Volume (2000 – 2011)
$2,000 46.7 50

Number of transactions (billions)
$1,800
37.9 40
$1,500
Dollar volume ($ billions)

$1,400
30
25.3
$1,000
$1,000
18.0 20

$700
$500
8.3 10

$300

$0 0
2000 2003 2006 2009 2011

Sources: CEB TowerGroup and Federal Reserve

Although updated numbers are not available from the Fed or CEB TowerGroup, data from Visa’s and
MasterCard’s annual reports indicate debit volume growth may have slowed significantly in the past year. Visa®,
the largest signature debit network as well as the owner of the Interlink PIN debit network, reported $822 billion
in Visa and Interlink-branded U.S. debit card purchase transactions for the nine months ending Sept. 30, 2012,
down 4.6 percent from $860 billion the year earlier. Meanwhile, MasterCard’s annual reports showed that
during the nine months ending Sept. 30, 2012, its U.S. debit card purchase volume of $332 billion was up 15
percent from $288 billion during the same period one year earlier (see Figure 2). Taken together, the combined
U.S. debit card purchase volumes of Visa and MasterCard® during the first nine months of 2012 increased by
only 0.5 percent – a far cry from the double-digit growth rates the companies were recording on a combined
basis just a year or two ago.

1


Figure 2: Debit Purchase Volume: Visa and MasterCard (First 9 Months of 2012)

$1,000
$900
$800
$700
$600
$ billions

$500
$400
$300
$200
$100
$0
Visa MasterCard
(9 mo. ending Sept. 30) (9 mo. ending Sept. 30)
2011 2012
Sources: Company annual reports

Disenchantment with debit by some financial institutions may be tied to the passage of the Durbin Amendment
to the 2010 Dodd-Frank Financial Reform & Consumer Protection Act. That amendment capped interchange
revenue – the biggest source of fee income for financial institutions that issue debit cards – at a rate that for
some banks is about 45 percent below what it had been prior to 2011. But the Durbin Amendment only applies
to financial institutions with assets of more than $10 billion – a small portion of the number of financial
institutions in the U.S. that issue debit cards, but a majority of the cards in circulation. As a result, many larger
banks have changed their emphasis on debit cards and some are investing more significantly in credit cards.

For smaller institutions, debit largely remains a profitable product to promote. And with the big banks’ emphasis
on debit changing, there may be an even greater opportunity for other financial institutions to grow their debit
card volume.

There are several reasons why financial institutions should promote debit, the biggest being the ability to
increase fee revenue:

• The greater debit card transaction volumes financial institutions see, the greater the interchange revenue
they can collect.

• There are benefits to reducing the cost of processing checks if check volume can be converted to a revenue-
generating debit card payment. In addition, there’s the potential to reduce teller and ATM costs associated
with providing cash to customers who use it to make purchases.

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• Finally, debit cards can be used as a tool to enhance financial institutions’ relationships with their customers.
Many consumers are watching their household budgets more carefully and find that debit cards simplify their
ability to pay for goods and give them control over spending. Financial institutions that can show their
customers how their lives can benefit by using a debit card can themselves benefit from loyal and grateful
customers.

But while there are definite benefits to promoting debit card use, some institutions may have falsely concluded
that it is a mature product with limited growth potential.

Research conducted by FIS shows there is still room for significant growth. Its 2012 consumer survey on
payments showed that about two-thirds of consumers currently use debit cards on a monthly basis for in-person
purchases. That alone indicates that one-third of a financial institution’s customers have yet to get the message
about the benefits of debit cards. Additionally, of those consumers who do use debit cards, only about half use
the cards heavily. That presents a sizeable customer base that could be motivated to use them more.

Clearly, those financial institutions that can identify segments of their customers receptive to greater debit card
use and engage in active educational and promotional programs have a lot to gain.

Why promote debit?
For financial institutions, there are three major reasons they should encourage customers to make greater use
of their debit cards:

• Greater fee income
• Lower costs associated with processing checks and dispensing cash
• Enhanced customer relationships

Clearly the greatest incentive for financial institutions to promote debit cards is fee revenue generation. And the
greatest opportunity for fee generation relates to interchange revenue.

Financial institutions that have assets under $10 billion typically generate 1.1 percent in interchange fees (based
on a blended rate for signature and PIN debit transactions) for every dollar spent with a debit card. 2 Based on
the debit card transaction behaviors of FIS’ financial institution clients; it is common for the retail customers of a
typical 10-branch financial institution to incur approximately $70 million a year in purchases on their debit cards.
A financial institution of this size can then increase its interchange fee revenue by $110,000 annually if it can
motivate customers to put $80 million worth of purchases on their cards, based on the 1.1 percent generated
from interchange.

Many financial institutions recognize the importance of this revenue. “Debit interchange fee revenue is the
largest single deposit revenue generator we have outside the margins,” says Rule Loving, Assistant Vice
President at $430 million asset StonehamBank in Stoneham, Mass. “We cannot charge a lot of fees on our
deposit accounts, so debit is clearly the strongest and most significant income source we have.” (See the
StonehamBank case study on page 14 for details on StonehamBank’s success in increasing debit card revenue).

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Some financial institutions, however, are concerned about the effects of the Durbin Amendment. That
legislation took effect Oct. 1, 2011 and capped interchange on debit transactions to 21 cents per transaction
plus 0.05 percent multiplied times the value of the transaction, plus a 1-cent fraud adjustment, if eligible, for
institutions with assets of $10 billion or more. Institutions with assets below that level are exempt.

A study by the Federal Reserve Board shows the effect this cap had on the two groups of financial institutions.
The Fed reported that nonexempt institutions (those exceeding $10 billion in assets) saw a 45 percent decline in
average fees per transactions from 2009 – from 43 cents to 23 cents. However, exempt institutions (those under
$10 billion in assets) showed no change in average interchange fees since 2009 (see Figure 3). 3

Figure 3: Average Interchange Fee Per Transaction

$0.43 $0.43 $0.43

$0.23

Larger Financial Institutions Smaller Financial Institutions
(> $10 billion in assets) (< $10 billion in assets)
2009 2011

Source: Press release from the Federal Reserve Board issued May 1, 2012

Clearly, even with the Durbin Amendment, there is still a substantial amount of interchange revenue for a
financial institution that actively promotes debit card use by its customers. Even large banks whose average
transaction fees have declined may find some benefit by offsetting the decline in revenue per transaction by
increasing the overall volume. Plus, even at a lower average rate of 23 cents, debit interchange revenue still
compares very favorably to the expenses financial institutions incur if consumers were to shift transaction share
back to checks and cash.

4


Other Fee Revenue

In addition to interchange revenue, some banks have found additional fee revenue in charging customers card
or transaction fees. Many institutions, however, do not want to charge debit card fees to customers for fear that
could discourage usage. There may be one exception to this theory: reward cards.

Some financial institutions have found that a sizeable number of customers will pay an annual or monthly fee for
a debit card if they get rewards for that card’s use. A study by Synergistics Research released in June, 2012 found
that about half of debit card users surveyed were offered some type of reward program with their card. More
than 40 percent of those said they pay a fee for their card. 4

In addition, when debit card users were asked if they would pay a fee for a debit rewards card, nearly 45 percent
said they would pay at some level. About 25 percent said they would pay $50 per year for a card, nearly 10
percent said they would pay $30 a year and another 10 percent said they would pay $20 a year. While the
implications of charging an annual fee for debit rewards participation must be carefully considered, these
consumer research results do reveal the level of value that some consumers place on loyalty program
participation, which represents a potential source of revenue to offset reduced interchange income.

Cost Reductions

While increased fee income may be the biggest reason for financial institutions to encourage debit card use, cost
reduction is also a factor. Much of debit card use today represents a substitution for paper checks. And
processing paper checks represents a sizeable cost that financial institutions want to reduce.

According to the Federal Reserve Payments Study, U.S. consumers wrote 14.5 billion in checks in 2009,
representing $5.5 trillion in value. The Fed estimated that 83 percent of these checks were for consumer retail
purchases and bill payments. 5

While the number of consumer-generated checks is declining, banks can accelerate that decline by promoting
debit cards. This accelerated demise of checks represents a substantial expense reduction opportunity to
financial institutions. According to IDC Financial Insights, U.S. depository institutions spend about $1.5 billion
annually on item processing. While paper has largely been eliminated from the check processing production
stream, it’s still the case that financial institutions typically incur fully-loaded unit costs of 6 – 7 cents for check
processing.

Debit card use also can substantially reduce the number of trips cash users make to ATMs and branch tellers.
According to William Demchak, President of PNC Financial Services Group, the cost of an ATM transaction to the
bank is 59 cents.6 CEB TowerGroup estimates the average fully-loaded cost of an ATM transaction to a financial
institution is 61 cents and the average cost of a branch teller transaction is $1.36. 7

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Enhancing Relationships

Not all the advantages of customers’ increased debit card use can be seen directly. Financial institutions that
recognize the benefits debit cards offer to their customers − and can promote those benefits – can potentially
deepen the relationships with their customers.

At a time when many financial institutions are talking about the need to enhance their customer relationships,
what better opportunity than to promote a product that customers say they like and improves their daily lives?

“Our members love debit cards,” says Kristina Latoszewski, Vice President of Marketing for $250 million asset
American 1 Credit Union in Jackson, Mich. “Debit helps them not make as many mistakes and it seems the way
to go for so many people.” (See the American 1 Credit Union case study on page 15 for details on how to
improve debit card use through quick activation and promotions).

FIS’ study of consumer attitudes about debit found that the majority of card users believe the card helped them
control their spending and gave them control over when funds are taken out of their account (see Figure 4). In
fact, more debit card users recognized that their payment method helps them not spend beyond their means
more effectively than check writers and cash users. The percentage recognizing that debit provides control over
the time when funds were taken out of their account was about the same as check writers and greater than cash
users.

Figure 4: Importance when making in-person payment for goods or services
(Top 2-box score on 7-point importance scale)

56%*
Helps me to not spend beyond my means 62%
56%

56%
Allows control over the timing of when
56%
funds are taken out of my account
52%

26% Paper check writers
Provides loyalty points / rewards 24% Debit carders
28% Cash users

Read as: 56% of Paper Check Writers rate “helps me to not spend beyond my means” as extremely or very important.
Source: FIS, February 2012; n = 3,205

Recognizing the benefits their cards give to consumers and clearly communicating those benefits to customers
can help financial institutions show they really care about their customers and their customers’ financial needs.

6


Targets of Promotion
Once a financial institution has decided it wants to promote debit card use, the first step should be to identify
customer segments that are most likely to respond to promotions.

FIS research in February 2012 with 3,205 consumers about their payment preferences shows that growth in
debit card use is possible for most financial institutions and there are segments most likely to respond to debit
promotions. Prime segments for debit promotions include:

• Light users of debit cards who can be convinced to use their cards more
• Paper Check Writers – defined by their relatively heavy usage of paper checks including POS usage vs. usage
of other payment methods – who can be converted to become debit card users
• Cash Users – defined by their relatively heavy usage of cash vs. other payment methods – who can be
converted to debit card users

Although Paper Check Writers and Cash Users are distinct segments, light users of debit cards are present
among all five payment groups identified in the research.

The FIS study found that about two-thirds of the consumers surveyed use debit cards. However, only about half
those use their card more than 10 times a month. The study also showed that heavy debit card users account for
86 percent of in-person debit transactions (see Figure 5). That indicates potential to increase debit card volume
by motivating light debit card users to use their cards more.

Figure 5: Distribution of Debit Card usage for In-person Payments
86%

36%* 35%
29%

14%

0%

Debit Non-user Light Debit User Heavy Debit User
Percentage of consumers Percentage of in-person debit payments
* Read as: Debit Non-users represent 36% of adult consumers.
Note: Light Debit Users used their debit card between 1 and 9 times and Heavy Debit Users used their debit card 10+ times in the past 30 days to make an in-
person purchase.

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While 65 percent of consumers use debit cards, 88 percent use cash, 63 percent use credit cards and 51 percent
use paper checks to make purchases, according to the FIS research (see Figure 6).

Figure 6: Percentage of Consumers Who Used Payment Method for In-person Purchases
in Past 30 Days and Average Number of Times Used Each Payment Method

Use of Payments for In-person Purchases (last 30 days)
100% 14

Avg. number of times used payment method
Percent who used payment method

90% 88%
% of consumers who used
12
80% Avg. # of times used

70% 10
65%
63%
60%
51% 8
50%
6
40%
33%
30% 4

20%
12%
2
10%

0% 0
Cash Debit Credit Paper Gift Prepaid
card card checks card card

* Read as: 88% of consumers used cash within the past 30 days for in-person payments. They used cash ~11 times on average.

Among those individuals who use debit cards, but not as often as other payment options, are Paper Check
Writers and Cash Users. Paper Check Writers consist of about 11 percent of adults surveyed. This group includes
older, middle-income consumers who are concerned with record keeping, security, over spending and
settlement timing. About half of consumers who would be considered Paper Check Writers also use debit cards
although the largest portion of that group (36 percent) are light debit card users.

By contrast, Cash Users consist of 27 percent of adults. They are a younger and lower-middle income group and
they view cash as convenient and cheap. They are concerned about spending too much and settlement timing.
They represent the biggest opportunity for debit card use from a pure volume standpoint (see Figure 7).

8


Figure 7: Distribution of Payment User Segments vs. Distribution of Heavy Debit Users

Distribution of Payment User Segments Distribution of Heavy Debit Users

Paper Check Credit
Writers Carders
Innovators 4% 4%
3%
Cash Users
14%
Credit carders Cash users
26% 27%

Debit
Debit carders
Paper check Carders
34%
writers 75%
11%*
Innovators
2%

* Read as: Consumers who show a preference for paper checks through high usage relative to others represent 11% of the adult population.

In addition, demographic profiles of the various payment users show that Cash Users are very similar to Debit
Carders. It follows that many of the tactics employed to promote debit card usage would appeal to both
segments (see Figure 8).

Figure 8: Average Age and Income of Payment Segments

60 Paper check
writers
11%*
55 Credit carders
26%
50 Cash users
Average age

27%
45
Debit carders
34%
40
Innovators
2%
35

30
$45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000 $85,000
Average income
* Read as: Paper check writers are 11 percent of the U.S. population and have an average age of 58 and an average annual household income of $55,269.

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Clearly, financial institutions that can identify which of its customers are light debit card users, heavy check
writers at the point of sale and heavy users of cash payments are headed in the right direction with debit
promotions. Analysis of customers’ payment behaviors and cash withdrawals provides insight into which
individuals are the most likely targets for migration to debit.

Winning Strategies
Once a financial institution has identified customers most likely to increase their debit card use, the next step is
to identify strategies that are likely to motivate those segments.

One of the most common strategies banks use to stimulate debit card use has been to issue rewards cards.
These cards typically either offer cash rewards or allow card users to accumulate points that can be redeemed
for gift items or airline or hotel travel benefits.

And there is evidence that rewards do indeed motivate debit card use. The FIS consumer study found that 24
percent of the Paper Check Writers segment said they could be moved to debit cards if they got rewards for
using debit cards instead of writing checks.

However, after the Durbin Amendment was implemented in 2011, some larger banks in particular began to drop
or significantly scale back debit rewards. A 2011 Debit Issuer Study by the Pulse ATM network found that 54 of
the respondents in their survey were looking to restructure or terminate debit rewards in response to Durbin.
Instead, issuers are expressing increased interest in merchant-funded rewards programs and relationship-based
programs. While the percentage offering debit rewards programs grew from 53 percent in 2008 to 58 percent in
2009, the percentage has since declined to 56 percent in 2010. 8

More recent research confirms this trend. In October 2012, First Annapolis Consulting released analysis of the
100 largest U.S. issuers of debit cards. They found that 37 of the top 100 now offer a rewards program, down
from 52 three years ago. But among the sub $10 billion institutions within the top 100 issuers, more are
attaching rewards to their debit cards. Eighteen are now offering debit rewards, up from 15 three years ago. 9

An FIS Loyalty Service study in 2012 found a 13 percent decrease in the number of total debit accounts in its
debit card loyalty program compared to 2011.10 However, the greatest decline in interest is associated with
banks with more than $10 billion in assets – those that have seen interchange revenue decline substantially post
Durbin.

The decline in big bank debit rewards programs could present an opportunity for small and mid-sized financial
institutions not only to promote debit cards, but also to promote their entire demand deposit account portfolio.
If they can offer customers rewards the larger banks cannot offer, they have a clear advantage in attracting new
customers.

Additionally, the entire landscape of debit rewards is changing. Whereas debit card rewards programs once
mirrored those of credit cards, new options are emerging that may be less costly to all financial institutions,
regardless of their sizes.

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In the past year, new offerings include merchant-funded rewards, relationship rewards and cash back rewards.
With merchant-funded rewards, financial institutions have relationships with specific merchants to offer
discounts or special offerings to customers who use debit cards at those merchants’ stores. The merchants are
willing to pay for the rewards because customers have to shop at their stores in order to get any rewards.
Indeed, financial institutions have the potential today to revise programs to lower their costs through a variety
of methods including:

• Adjusting points-earning ratios to reduce the cost of redemptions
• Selectively offering rewards to premium customers who maintain a high balance or multiple products with
the financial institution
• Combining debit with credit reward products
• Offering alternative funding sources, such as merchant-funded networks or relationship rewards
• Incorporating annual fees on rewards cards

Outside of formal rewards card offerings, financial institutions are finding a wide range of other activities they
can implement to encourage customers to make greater use of their debit cards.

A good place to start in promoting debit is at the financial institutions’ branches and call centers. Staff members
who are informed of debit card benefits and are incented to promote the cards can go a long way toward
stimulating debit card use.

“We get our staff on board with debit through incentives and then it’s an easy sell for them,” says Loving of
StonehamBank.

When developing any promotional strategy financial institutions should consider the customer segment they are
appealing to. Those targeting light debit card users might send out offers to customers whose debit card use
falls below a certain transaction or dollar threshold. These offers would provide gift cards or account rebates to
customers who increase their card use to a specified amount during the next month.

Also, if Cash Users are the targeted audience, a financial institution could identify customers who are making a
large number of foreign ATM withdrawals and remind them via an e-mail or phone call that they can avoid
foreign fees by requesting cash back with a debit purchase.

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Defining the Message

Regardless of what strategy is used, financial institutions promoting debit card use should make sure their
messaging fits the targeted segments. This requires some understanding of the current perceptions and
misperceptions consumers have about debit.

The first thing to look at is what current debit cardholders like about debit. The most desirable attribute is the
cards help them not to spend beyond their means (See Figure 4). That is followed by the perception that the
cards allow greater control over the timing of when funds are taken out of customers’ accounts.

Another perception that financial institutions need to consider is that a larger number of Paper Check Writers
and Cash Users believe their current payment method is less expensive to use than debit cards (see Figure 9).
Debit card promotions should address this by showing the low cost to consumers to use a card relative to paper-
payment alternatives.

Figure 9: Percentage rating cost of payment methods “very low” or “low”
Paper Check Writers Cash Users

Cash 87%* Cash 81%

Gift card(s) 81% Gift card(s) 79%

Paper checks 78% Paper checks 78%

Debit card(s) 71% Debit card(s) 69%

Prepaid card(s) 62% Prepaid card(s) 60%

Credit card(s) 48% Mobile payments 58%

Mobile payments 43% Credit card(s) 44%

Read as: 87% of paper check writers rate the cost of cash as “very low” or “low.”.

9

This is particularly the case for the Paper Check Writer segment, which according to FIS’ consumer research,
writes an average of more than 200 checks annually between in-person purchases and bill payments.
Furthermore, the FIS research found that 64 percent of the avid Check Writer segment pays to receive paper
checks while only 36 percent receives them free of charge from their financial institution. Even among the least
expensive options, a box of 200 basic paper checks typically costs a consumer at least $20. So the money that
can be saved by increasing debit card transactions over paper checks is clearly a consumer benefit that financial
institutions should be able to leverage.

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The FIS study also shows that even more Debit Carders could be motivated to use less cash if institutions
promoted the benefits that many Debit Carders value the most – such as helping them control their spending –
as well as emphasizing the convenience of debit cards vs. cash (see Figure 10).

Figure 10: Percentage of Debit Carders in Agreement with Motivators to Use Less Cash
(multiple response)

I got rewards for using a credit / debit card instead of
28%*
using cash

I felt other payment methods were just as convenient as
cash 23%

More places and people accepted credit / debit cards 21%

I felt other payment methods helped me control my
19%
spending as well as I can with cash

I felt other payment methods provided protections
15%
against disclosure of personal information

I was not concerned about overdrawing my checking
13%
account

Nothing would persuade me to use cash less for in-person
11%
purchases

Prepaid cards were as cheap to use as cash 7%

* Read as: 28% of Debit Carders would use less cash for in-person purchases if they got rewards for using a credit/debit card instead of cash

Clearly, this research indicates than any communication about debit cards must emphasize that debit cards:

• Give customers ability to control spending
• Give customers control over when funds are withdrawn
• Are inexpensive to use
• Are convenient to use

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Conclusion
While debit card transaction growth may have slowed in recent years from the red-hot growth during the early
2000s, there clearly is room for expansion in the use of debit cards by a financial institution’s customer base.
However, it will require a strong commitment to promoting debit by that institution and a well-defined strategy.

Financial institutions will need to define which customer segments they want to approach with the most likely
candidates being Cash Users followed by Paper Check Writers and then Debit Carders, who are currently light
users.

To motivate these segments, financial institutions will need to develop strategies that address these segments’
perceptions about debit and offer some incentives for usage. Financial institutions may want to take a second
look at debit rewards cards and see if some modifications to the old rewards card models can make new card
offerings viable in the post-Durbin world.

Finally, institutions need to make sure their entire front-line staff is on board with promoting debit cards and is
incented to do so.

But in the end, those financial institutions that have developed strong, clearly defined strategies to support
debit card use will be rewarded. There is considerable additional interchange and other fee revenue to be made
by those institutions committed to their debit card offerings as well as the opportunity to reduce operational
costs and enhance relationships with their customers.

The following case studies of StonehamBank and American 1 Credit Union profile opportunities that financial
institutions have to promote debit cards and drive additional usage and revenue growth.

Case Study: StonehamBank
Headquarters: Stoneham, Mass.
Assets: $430 million
Number of Branches: Two

Although financial institutions need to carefully monitor the potential for fraudulent and disputed card
transactions, sometimes trying to reduce fraud by setting too low of a daily limit on debit card activity can
hinder card use.

StonehamBank found that raising the daily limits on debit card transactions can significantly increase debit card
volume while not increasing chargebacks or fraud. Three years ago, the community bank’s daily limit for point-
of-sale (POS) purchases was $1,000. But the bank then took a close look at how many transactions were being
denied because they exceeded that daily limit. StonehamBank found it had been declining about $300,000 in
debit transactions each month, explains Rule Loving, Assistant Vice President of Retail Services. That was costing
the bank about $4,500 in lost interchange revenue each month, based on a 1.5 percent interchange rate.

After making this observation, the bank raised its daily POS limit to $2,000, and after one year, noticed no
increase in the number of disputed transactions. So the following year, it again raised the limit, this time to
$3,500.

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Loving says the bank has reduced its denied transactions level to between $10,000 and $15,000 a month,
compared to the $300,000 level three years earlier, without any corresponding problems. “We may raise the
limits again in the future if we think it is necessary,” says Loving.

Raising daily limits is just one part of an aggressive effort at StonehamBank to encourage customers to use their
debit cards more. Although rewards cards are a popular incentive used by many financial institutions,
StonehamBank instead chose to look at what it could do internally to boost debit volume.

StonehamBank starts by making debit card promotion part of its sales incentive plan. “Our universal associates
have quarterly sales goals and we designed the point structure so they get bonus points for promoting the use
of debit cards,” says Loving.

As a result, about 86 percent of the debit cards issued by the bank can be used at the point of sale – not just at
the ATM, and about 70 percent of the bank’s customers are actually using their debit cards to make retail
purchases. The bank processes about $5.5 million debit transactions per month.

That is a significant accomplishment considering the bank’s main branch customers trend a little older as about
22 percent are seniors, a group that does not exhibit high usage of debit cards.

Other efforts to get customers to use debit cards include a program in which the bank offers a $2 monthly credit
for each of the first three full months on a new account if the customer conducts 20 debit transactions. The bank
also refunds any foreign ATM surcharge fees for customers in the top tiers of the bank.

Finally, the bank identifies and contacts customers who are found to be making a lot of foreign ATM transactions
to remind them that they can avoid paying ATM surcharges by using their debit cards for cash back at the point
of sale.

Case Study: American 1 Credit Union
Headquarters: Jackson, Mich.
Assets: $250 million
Number of branches: Twelve

Getting debit cards into the hands of members quickly so that they can start using them right after opening an
account can significantly increase members’ use of their cards. American 1 Credit Union originally moved to
instant card issuance to reduce the cost of sending out cards. But it has seen a positive impact on the use of
cards by members as well. Under the prior system, members who opened a new account or needed to renew a
debit card had to wait 10 days to get their cards. Now they can start using them immediately.

“Our activation has gone to day one and as a result, we’ve seen the usage start earlier in the process,” says
Kristina Latoszewski, Vice President of Marketing. And if nothing else, “that gives us an extra 10 days of income,”
she adds.

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Additionally, the sooner members can start using their cards after they are sold on the benefits by a teller, the
more they are likely to realize those benefits. If they have to wait 10 days from when they are told about the
card, they might forget the message of the card’s benefits.

American 1 has seen the benefits of promoting debit card use in its 25 percent year-to-year increase in
interchange income from March − September.

American 1 is now looking at other ways to increase debit card use. It began a FIS Debit Insights campaign in
November 2012. Members who make a lot of purchases receive a $20 gift card that they can choose to redeem
from one of 45 different retailers. The campaign is designed with the intent of converting light debit card users
to become heavy debit card users. Members chosen to participate had debit card purchases of less than $250
during August and they must make $650 or more in monthly debit card purchases to get the reward. About
8,000 members are participating.

American 1 also is hoping to analyze purchase data from the campaign to see how its members use debit so that
it can tailor promotions even better.

“We definitely will be looking at different groups. We can slice and dice this information any way we want.
We’ve developed a committee internally to figure out how to increase revenue for the credit union,” says
Latoszewski.

In addition, the credit union is looking at whether members who request customized images on their cards use
their cards more. Credit union management suspects that those members who really like the image they have
selected for their card are more likely to pull it out to make a purchase. While the credit union currently charges
$6 to cover the cost of customization, it may begin to waive the fee if it finds out that members with customized
cards do indeed use them more. About 40 percent of the cards issued by American 1 have the premium
upgrades.

Endnotes:
1
TowerGroup, “Trends in U.S. Payments: Noncash Transaction Volume Growing Despite Uncertainty,” December
2011
2
Press Release and analysis published by the Federal Reserve Board, “Average Debit Card Interchange Fee by
Payment Card Network,” May 1, 2012
3
ibid
4
Synergistics Research, “The Future of Debit Card Programs,” June 2012
5
Federal Reserve System, “The 2010 Federal Reserve Payments Study: Noncash Payment Trends in the United
States: 2006 – 2009,” Updated April 5, 2011
6
William Demchak, President of PNC Financial Services Group at Banks of America/Merrill Lynch Banking and
Financial Services Conference, November 13, 2012

16


7
Analysis conducted for FIS by Nicole Sturgill of CEB TowerGroup, October 2012
8
Pulse, “2011 Debit Issuer Study,” May/June 2011
9
Digital Transactions, “Debit Card Rewards Hang Tough after One Year of Durbin Interchange Caps,” October 8,
2012
10
FIS, “Post-Durbin Loyalty and Rewards Programs – A Whole New World,” presented at ICBA TechWorld on
March 12, 2012

About the Research
“The Case for Promoting Debit Cards: Why They Are Still a Growth Product” is part of a series of research briefs
based on primary research conducted by FIS Strategic Thought Leadership. The research findings herein are
based on a 75-question online survey completed by a representative sample of 3,205 adults in February 2012.
The survey was fielded by FIS to a consumer panel maintained by Toluna.

The study’s primary objective was to determine strategies and tactics to migrate paper to electronic payments.
Supporting study objectives included: 1) segmenting consumers based on payment method preferences, 2)
determining how payment methods differ by payment contexts and 3) identifying obstacles to and incentives for
migration away from paper.

About FIS
FIS delivers banking and payments technologies to more than 14,000 financial institutions and businesses in
over 100 countries worldwide. FIS provides financial institution core processing and card issuer and transaction
processing services, including the NYCE® Payments Network. FIS maintains processing and technology
relationships with 40 of the top 50 global banks, including nine of the top 10. FIS is a member of Standard &
Poor's (S&P) 500® Index and is currently ranked No. 1 in the annual FinTech 100 rankings. Headquartered in
Jacksonville, Fla., FIS employs more than 32,000 on a global basis. FIS is listed on the New York Stock Exchange
under the “FIS” ticker symbol. For more information about FIS, see www.fisglobal.com.

“The Case for Promoting Debit Cards: Why They Are Still a Growth Product” was authored by Paul McAdam,
Senior Vice President of Strategic Thought Leadership at FIS, and Mandy Putnam, Director of Strategic Thought
Leadership at FIS.

Please contact the authors if you have questions about the research or how the results apply to your
organization.

Paul McAdam
708.449.7743
paul.mcadam@fisglobal.com

Mandy Putnam
614.414.4207
mandy.putnam@fisglobal.com

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The Case for Promoting Debit Cards: Why They Are Still a Growth Product

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