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Direct Deposit – The “Magic” Behind Debit Growth

By: Tom Bennett, Principal, Advisors Plus, PSCU

The past two years have seen unprecedented changes in payments. Debit has come to the forefront, with sales volume growth in 2020 (+11%) and 2021 (+19%) well outpacing the historical trend of approximately 7%. A multitude of factors are driving this, including concentrated spend by consumers in “everyday” categories like groceries and household supplies that are historically the domain of debit. However, an additional factor was the influx of liquidity through three rounds of government stimulus and relief programs, in addition to other means of support. PSCU’s data shows that during each period of disbursement, debit growth as much as doubled in the following month. Most of the stimulus came into checking accounts via direct deposits, while much of it left as debit card transactions.

While the data confirms the value of direct deposit, our work with credit unions reveals a significant opportunity to deepen utilization, as the number of members using this service lags comparatively. While slightly dated, a 2016 survey from the National Automated Clearing House Association (NACHA) revealed that 82% of U.S. workers ─ crossing age, income and other demographic categories ─ are paid by direct deposit via Automated Clearing House (ACH). A recent study by Javelin suggests that the penetration rate of direct deposit at large financial institutions (Bank of America, Chase, and Wells Fargo) averages 77%, with some over 80%. We typically see less than 50% at credit unions.

Intrinsically, there are additional benefits to direct deposit. Surveys reveal that direct deposit is a leading factor in primacy, with “where my paycheck is deposited” being a key factor in denoting “primary financial institution” (PFI). PFI leads to engagement – and engagement leads to ongoing opportunities to serve the financial needs of members.

So, what should credit unions do?

  • Measure: Understand your current direct deposit penetration rate. How does it compare to the 77-80% penetration rate that is attainable? How much opportunity is there?
  • Manage: Define performance, set goals and manage accordingly. Build initiatives and communicate their value. Share responsibility for improvement.
  • Market: Remind members about the benefits of direct deposit often. Direct deposit adds ease and convenience for members – which was never more evident than during the pandemic, when branches were closed and the ability to make deposits was hindered. In addition to convenience, direct deposit means funds are immediately available, providing quicker access than alternatives.
  • Motivate: Build incremental value into direct deposit to help motivate members to enroll. Often, direct deposit is one qualifier for free checking, which saves the member monthly maintenance fees. Many financial institutions are now offering “early access” to direct deposit, providing the availability of funds up to two days early. Moreover, direct deposit can be integrated into courtesy pay programs. Chime is a great example, where recurring direct deposits provide access to their “Spot Me” offering, giving accountholders the ability to overdraw an account fee-free up to $200. Offerings like these can give credit unions a platform to expand the ease and convenience of direct deposit into something even stronger.
  • Make it easy: Provide members with the tools to enroll in direct deposit. This can range from prefilled forms (not a generic document) with all the applicable information required, to the access to services facilitating the move. While each situation may vary, the key is having the tools serve as an enabler for your members.

Enrolling in direct deposit provides many financial benefits for your members, as well as for your credit union, as it ultimately leads to an increased use of debit. Capture direct deposit with your members and you will capture the “magic” of debit.

Tom Bennett is a Principal Consultant with the Checking and Debit Card practice at Advisors Plus. Tom advises credit unions on ways to enhance portfolio growth and profitability through P&L and key metric performance analyses, competitive product assessments, and industry and peer benchmarking reviews. His combination of consulting knowledge and direct experience provides an informed and unique perspective to solve the challenges of our clients.