Helping Credit Unions Compete for credit debit and pre-paid services
Nov 01, 2014
Helping Credit Unions Compete
for credit debit and pre-paid services
Who is the ICUL Service Corp?
• We are owned by the Illinois Credit Union League, a
Credit Union Non Profit Organization
• Our mission is to “Help Credit Unions Compete”
• We are a ONE STOP SHOP for all credit union needs
with multiple processing options and comprehensive
network relationships:
VISA, MasterCard, Discover,
CO-OP, Allpoint, Money Pass, PULSE, STAR
FiServ, First Data, FIS
ICUL Service Corporation Background
• Services Offered:
We provide services to credit unions in all 50 states.
ATM Network (12th largest ATM Network)
Credit cards (1,000+ programs)
Debit cards (3,600+ CU’s)
Prepaid Debit
Gift Cards Family Card
Travel Money Everyday Spend
Payroll
Multiple processing options
• Credit Cards – First Data and Fidelity Pass Thru and Full
Service option
• Debit Cards – First Data, Fiserv, Fidelity Intercept and Fidelity
Pass Thru Platforms
User friendly web based work stations for all of our credit unions.
Collection Services
Implementation Team
• Dedicated group of 12 + staff
• Credit union works one on one with our
implementation department throughout the process
• Implementation coordinators
Program upgrades
Conversions
Program consolidations
Customer Service Support
• Call center is served by “teams” of customer service
representatives so that each team gets familiar with
your credit union.
• Call center performance is monitored and measured
• Credit union survey is conducted to ensure
standards are met
EMV Cards (chip cards)
Visa and Mastercard EMV
rule changes
• Visa April 1, 2013 – Acquirer processors and subprocessors must certify support for and
accept Visa EMV chip contact and contactless transactions
October 1, 2015 – Liability shift for counterfeit POS fraud will be assessed to the party that prevented the chip to chip transactions
• Issuer : If the card was not EMV – chip enabled
• Merchant Acquirer : If the POS terminal is not chip enabled
October, 1, 2017 – Same as above for Automated Fuel Dispenser
• Mastercard
January 2012: Established a “liability hierarchy” to rate card acceptance methods based on the interplay between card and acceptance devices
• Mag-stripe is least secure
• Chip and signature
• Chip and PIN is most secure
By 2013: 50% PCI compliance testing and fee reflief for merchants running 75% of card transactions through an EMV terminal with both contact and contactless capability
By 2015: 100% relief for merchants running 95% of transactions through an EMV terminal.
Liability shift implication
• In U.S. Today In most card present environments, fraud is absorbed by the issuer unless the merchant fails
to meet POS acceptance requirements of fails to defend the “chargeback process”
• Visa 2015 : Liability will fall on the entity that has not upgraded to chip, whether it’s the issuer or the
retailer
• If both have chip, then the issuer will be responsible
• If the issuer has upgraded and the retailer has not, then the retailer will bear the liability cost
• Mastercard 2015 : Liability shifts to merchants who have not upgraded their POS
terminals to process emv card transactions and fraud occurs • Whichever party (issuer or merchant) offers the least secure method would be held
liable for a fraudulent transaction.
• Liability shift does NOT include lost/stolen card fraud, card not present transactions(ecommerce) and contactless cards without a contact chip
EMV Adoption Rates
Figures reported in Q4 2011 and represent latest statistics from American Express,
JCB, Mastercard and Visa, as reported by their member FI’s gloabally
Issuers Terminals
EMV Cards Adoption Rate EMV Terminals Adoption Rate
Canada, Latin America and Carribbean 318,779,062 41.1% 4,443,000 76.7%
Asia Pacific 366,229,237 28.2% 4,551,000 51.4%
Africa and the Middle East 31,573,578 20.6% 462,000 75.9%
Europe Zone 1 759,760,119 84.4% 11,920,000 94.4%
Europe Zone 2 37,104,467 14.5% 610,500 68.1%
United States not reported not reported not reported not reported
Totals 1,513,446,463 44.7% 21,986,500 76.4%
Durbin Amendment
2011 Durbin Key Provisions
• Interchange CAP
Exempt – FI’s under $10 Billion
Non Exempt – FI’s over $10 Billion
• Routing and Exclusivity
2 Unaffiliated Networks required
Eliminates Issuer Priority Routing
• ATM Cards must comply with PIN/POS Rules
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“Unaffiliated Networks”
National Network Signature PIN POS ATM Brand
VISA VISA Interlink PLUS
Mastercard Mastercard Maestro CIRRUS
Discover Discover PULSE PULSE
Star Star Star
Accel/Exchange Accel Exchange
Others Others Others
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ATM Network Response
• Most ATM Networks have enticed financial institutions , where if credit unions only participate in one PIN POS network they earn additional income
> PULSE – Pulse Pay Choice (PPC) > Star - STAR Preferred > Accel/Exchange – Member Advantage
• CU does have to sign a new agreement with these networks to participate in
increased interchange income. • Average PIN POS increase income is between 10-15% of current income • A lot of Credit Unions already only participate in one ATM network, however
they haven’t taken advantage of the additional PIN POS interchange
• For Credit Unions on multiple PIN POS networks – Is having multiple networks diluting your interchange income?
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Leverage Single Branded
• AVG Increase in PIN POS Interchange:
$.03 - $.055
• What does it really mean to our CU’s?
10,000 PIN POS Transactions Month = $6,000 a year in added Revenue
15,000 PIN POS Transactions Month = $9,000 a year in added Revenue
20,000 PIN POS Transactions Month =$12,000 a year in added Revenue
What has happened to Signature
Income
ICUL-Service Corporation Stats
• Prior to Durbin Amendment – 1.40% Average – July thru
September 2011 average
• October – December 2011 Average – 1.31% - Visa made
modifications to some of their rates October 1st, as well as
some of their merchant tiers.
• April 2012 – Visa once again modified interchange rates –
Average is 1.26% for our credit unions in April
• 14 Basis point drop since September on average
$100,000 spent is $140 less in monthly interchange
Credit Union Concerns
• Loss of program revenue
Since October Most credit unions have lost between 10-20
basis points.
Merchant Steering of Transactions – VISA PIN
Authenticated Visa Debit (PAVD)
Market suppression of future interchange? Will PIN POS
and Signature Interchange reach Parity?
• PIN Average : $.31 - $.04 (network switch fee) = $.27
• Add $.03 to $.055 with exclusive deal - $.30-
$.325 • Signature Average: $35 x 1.26% = $.441 - $.06 (Visa base 1
and 2 fees and quarterly assessments) = $.381
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Federal Reserve Interchange Report
Federal Reserve Avg PIN
Interchange – Oct thru Dec 2011
October - December 2011 January - September 2011
Exempt Non Exempt Exempt Non Exempt
PIN AVERAGES $0.31 0.72% $0.23 0.55% $0.32 0.75% $0.34 0.84%
ACCEL/Exchange $0.31 0.72% $0.21 0.41% $0.30 0.70% $0.29 0.61%
AFFN $0.24 0.75% $0.20 0.31% $0.25 0.66% $0.22 0.57%
Alaska Option $0.15 0.28% $0.15 0.27% $0.15 0.23% $0.15 0.28%
ATH11 $0.30 0.80% $0.17 0.47% $0.29 0.80% $0.29 0.80%
Credit Union 24 $0.21 0.46% $0.18 0.29% $0.21 0.47% $0.25 0.45%
Interlink $0.31 0.78% $0.23 0.57% $0.34 0.84% $0.35 0.87%
Jeanie $0.25 0.50% $0.18 0.38% $0.26 0.60% $0.30 0.72%
Maestro $0.27 0.64% $0.24 0.54% $0.31 0.78% $0.34 0.78%
NetWorks $0.33 0.97% $0.24 0.71% $0.31 0.94% $0.31 0.94%
NYCE $0.34 0.77% $0.23 0.49% $0.34 0.79% $0.37 0.81%
PULSE $0.33 0.81% $0.24 0.56% $0.32 0.79% $0.35 0.81%
SHAZAM $0.29 0.72% $0.19 0.43% $0.26 0.67% $0.24 0.60%
STAR $0.32 0.72% $0.24 0.53% $0.33 0.76% $0.32 0.74%
Signature Interchange – Fed Report
October 2011 - December 2011 January 2011- September 2011 2009 averages
exempt non-exempt exempt non-exempt All F.I.'s
Signature $35.58 $0.51 1.43% $38.03 $0.24 0.63% $36.33 $0.54 1.48% $38.07 $0.59 1.54% $37.15 $0.55 1.49%
Discover $0.42 1.43% $0.17 0.56% $0.43 1.40% $0.25 0.89%
MasterCard $0.54 1.48% $0.24 0.61% $0.55 1.50% $0.59 1.50%
Visa $0.49 1.41% $0.24 0.63% $0.53 1.47% $0.58 1.55%
Debit Card Growth Strategies
Visa Peer Group Scorecard
4th quarter 2011
Metric Visa System Issuers
1 - 20
Issuers
21 - 50
Issuers
51 - 100
Issuers
101 - 250
Power Score:
Transaction 7.94 10.76 8.67 8.57 8.46 Sales volume $278.20 $372.43 $306.47 $300.03 $293.06
PAU:
Penetration 76.6% 79.8% 73.5% 75.2% 72.0% Activation 65.6% 74.5% 76.1% 74.0% 74.8%
Usage 15.8 18.1 15.5 15.4 15.7
Portfolio Growth:
Sales Volume 5.3% 7.9% 8.5% 13.0% 11.3% Transaction Volume 5.0% 7.4% 7.9% 13.0% 10.9% Average Ticket $35.04 $34.61 $35.35 $35.01 $34.66
Accounts and Cards:
VCC Accounts 173,858,739 5,573,098 298,980 143,453 71,308 VCC Accounts Growth 2.2% 3.6% 4.9% 4.6% 8.5% VCC Card Growth (1.1%) 2.2% 3.2% 4.8% 7.0% Sales Volume by MCC:
Retail 28.8% 28.3% 29.4% 30.5% 29.4% Restaurants 10.1% 10.4% 9.8% 9.5% 10.0% Supermarkets 8.4% 7.7% 9.8% 10.2% 9.6% Fuel 11.3% 10.0% 12.4% 13.6% 12.6% Bill Payment 15.4% 16.9% 13.5% 12.7% 13.2% Quick Service Restaurant 6.2% 6.3% 6.2% 5.8% 6.5% Mail/Telephone Order 9.5% 10.1% 8.7% 8.2% 8.5% Internet 17.7% 18.7% 16.3% 15.7% 16.3%
Operation Metrics:
Authorizaion Approval % 93.6% 93.4% 93.6% 94.2% 94.2% Declined % 4.4% 4.5% 4.4% 3.9% 3.8% Overall Chargeback % 0.03% 0.04% 0.02% 0.01% 0.01% Reported Fraud Losses rate (BP) 11.21 12.56 9.72 7.73 8.91
Penetration
Develop a Card Strategy Visa Average is 76.6% of share draft/checking accounts
• All new DDA accounts should receive a Visa check card
Best-in-class issuers are penetrating 90% of new DDAs
Ensure branch platform defaults to Visa check card
Position the card as a primary access device to checking account
• Evaluate non-Visa check card customers
Upgrade ATM and/or DDA-only accounts
Use Performance Measurement Calculators to develop business
case
• Develop activation program for all accounts
Incorporate telemarketing within first 14 days to
encourage early activation
Incent employees based on card activation
Penetration
Educate employees and cardholders
• Provide training to branch employees
Turn employees into Visa check card ambassadors
• Communicate product advantages to cardholders
Ease of use
Worldwide acceptance
Safety and security
• Zero Liability policy
• Provisional credit
Debt management and budgeting tool
Activation Strategies
Reward for
activation,
not only for account
opening
Focus new customer
conversations on the
benefits of activation/
usage
Follow-up new
accounts with an
activation call
7–10 days after issue
EMPLOYEES NEW AND EXISTING
CARDHOLDERS INACTIVES
Use Merchant Offer
Program incentive offers
based on activation
Contact new cardholders
early (within 15–45 days
of account opening)
Utilize standard and/or
low-cost channels initially
to allow for natural
activation
Additional follow-up after
45–60 days of inactivity
Develop ongoing
activation program
Contact monthly or
quarterly based
on volume
Use direct mail,
telemarketing,
branch
follow-up calls,
emails, statement
channel
Activation-Specific Materials Card Carriers
Some credit unions
have blank card carriers. Use them as a marketing message.
Introductory/
Reissue
Upgrade
FACT: Card carriers are often the first touch point with the cardholder after initial account opening
Remind them of key reasons for using their card
Activation-Specific Materials Direct Mail
General Education
• Inserts (two and four-panel)
• Letters and packages
• Track usage 30 days after
Card is sent to your member
Activation Letter with
Merchant Discounts
Insert with and Without
Merchant Discounts
Activation
Follow-up Letter
TIP: Direct mail for activation is recommended during the initial 45–60 day window after card issuance
Usage
• Visa average active cardholder does 15.8 transactions per
month at an average of $35.04.
• Number 1 metric to concentrate on to drive interchange
income
• Core Data Processors
Can you core data processor support providing a member an
additional 50 or 100 basis points on the checking account
balance if a member does over a certain dollar amount of
transactions in a month or a certain number of transactions?
Usage Strategies
Take Multi-Pronged Approach
• Educate cardholders where and how to use
Medium and heavy users – new places to use
Light users – benefits (security, budgeting)
• Incent card usage with value-add programs (e.g., rewards, merchant offers, sweepstakes)
• Ensure optimal daily spending limits
Bill payments, other emerging merchant segments have higher average tickets
Usage Strategies
Take Multi-Pronged Approach
• Encourage cardholders to pay bills with the Visa card Build annuity-like usage and improve retention
Increase average ticket – $79 bill payment average
• Advocate security-based product advantages to replace cash and checks
Credit Cards
Knowing Your Cardholder Habits
Keeping track
of your billed
accounts with
Finance
charges
assists in
tracking
Revolvers vs.
Transactors
As you can
see their
priorities do
differ and
may need to
be marketed
to differently.
Survey performed by J.D Power and Associates.
Credit Card Penetration
Year All in US
Under $20M
$20M- $ 5 0 M
$50M- $100M
$100M- $250M
$250M- $500M
$500M- $1B
Over $1B
3Q2011 14.74% 11.77% 10.15%
3Q2010 14.32% 12.17% 10.37%
11.77% 13.66% 14.4% 19.09%
11.6% 13.16% 14.35% 18.71%
11.29%
11.28%
Penetration continues to be an opportunity for all credit unions, regardless of their Total Asset size.
Average at 14.74% and Top 3rd up at 26.8%
Increase Penetration thru:
• Rewards
• Direct Mail Campaigns
• Marketing Materials/Product Presence (Web, Lobby, etc.) • Balance Transfer Campaigns • Pre-approvals and cross-selling
Source: Callahan and Associates 3Q3011 Credit Union Strategy and Performance
Average Outstandings
Average outstandings
remained stagnant as well
as finance charges
Balance Transfers
TLR Pricing – Special
APR’s based on MCC
Rewards
Source: CSCU averages year end 2011
INCREASED ACTIVE ACCOUNTS
% of Accounts Billed
showing growth. The more Billed Accounts we
have the greater portfolio
profitability.
% of Accounts with
Finance Charges remain
at the same level, 65-
66%. Increasing revolvers increases
Outstanding and improves Loan to Share.
Source: CSCU averages year end 2011
•CREDIT LINES VS. OUTSTANDING
Increased % of Credit
Line Used continues to
restrict cardholders from
increasing average balances.
Annual Credit Line
Management:
• VERIFY ACTIVE ACCOUNTS VS. CREDIT LINE USED
• Look to increase revenues
and reduce risk
Source: CSCU averages year end 2011
USAGE & VOLUME CONTINUE TO GROW
Increased Usage drives
increased Volume per
Account.
Work your inactive accounts. Usage Promotions Rewards
Source: CSCU averages year end 2011
REVENUE PER BILLED ACCOUNT
Source: CSCU averages year end 2011
Increased Penetration,
Activation, Usage and
Balances Drives
REVENUE Growth
CREDIT CARD DELINQUENCY AND CHAREG-OFFS
•3Q2011
•3Q2010
•1.18%
•1.64%
•2.5%
•4.3%
•There is a positive trend in Delinquency and Charge-Offs. Both ratios •continue to improve across all asset sizes.
Source: Callahan and Associates 3Q3011 Credit Union Strategy and Performance
YEAR
Reportable
Delinquency Annualized Charge-
Offs