Credit, Debit And The Credit Union Conundrum

Close to half of the credit union (CU) executives surveyed by PYMNTS earlier in the year expected credit card processing revenues to outstrip debit in 2020. Several months down the road, it’s a very different picture, as credit tightens and debit takes on an air of frugality.

“Many CUs’ credit innovation plans ground to a halt when the health crisis began, however,” according to PYMNTS’ Credit Union Tracker® done in collaboration with PSCU. “More than 40 million U.S. consumers filed for jobless benefits between January and July, and even those who have remained employed are significantly altering their spending. Credit products often carry debt and fees, and consumers are generally less inclined to use such solutions when they are on uneven financial footing.”

Against that backdrop, CUs and credit union service organizations (CUSOs) are innovating credit offerings to meet new needs and experiential demands that have emerged or been accelerated by the COVID-19 pandemic and resulting economic malaise.

PYMNTS’ September Credit Union Tracker® looks at the underlying value and market potential of credit as financial institutions (FIs) of every kind adjust their strategies.

The Best-Laid Plans

Things looked great in the credit markets, until pretty recently. The Credit Union Tracker® notes that “CUs’ pre-pandemic innovation agendas reflected an overall rosy outlook on innovating card-issuing credit products. Seventy-two percent were highly interested in innovating products that offered digital management capabilities, for example, while 48 percent and 42 percent were highly interested in developing solutions that provided notifications and alerts and instant issuance to digital wallets, respectively.”

Brian Scott, chief growth officer at PSCU, told PYMNTS that “credit unions should be prepared to meet members’ changing behaviors with the offerings they need in today’s new normal. While the pandemic has led more consumers to choose debit as their preferred payment method, that doesn’t mean credit should not be a focus.”

Scott added, “With key functionality like digital issuance of plastics, enhanced loyalty solutions and intelligent fraud tools that provide real-time alerts, credit union credit cards can compete with any of the large bank issuers on creating exceptional payment experiences. While large issuers are pulling back on credit, an opportunity exists for credit unions to fill this need in the market — and position themselves for growth when credit spending does rebound.”

CUs: High Hopes, Low Touch

Credit sometimes gets bad press, but the stats show that people actually like credit—if they qualify. The debit pivot is, in part, a temporary reaction on the part of consumers who have been understandably shaken by the 2020 economic devastation. That will pass, however, and credit will eventually resume its important role in the overall payments mix.

In the meantime, it’s commerce by any means necessary as American business mounts a recovery and looks to the upcoming winter gifting season for the hope of better times ahead.

PSCU’s Scott told PYMNTS that “Amazon purchases by … credit unions’ members [have been] up as much as 94 percent on debit and 55 percent on credit year over year during the pandemic,” adding that “many consumers have started using forms of payment that limit physical contact, avoiding cash in favor of contactless options or mobile offerings.”

Strategies that cater to mobile experiences and payments preference are likely to win over more traditional options. “According to PSCU’s transaction data from its owner credit unions, debit contactless transactions have grown from around 8 percent in mid-January to nearly 13 percent of card-present activity in September, while credit contactless transactions have increased from 6.5 percent to nearly 10 percent of card-present activity. Mobile wallet usage is also up exponentially,” Scott said.