Four Smart Strategies for Maximizing Debit Interchange Revenue
February 8, 2022
Credit unions have a limitless need for non-interest income (NII). Often more stable and predictable than its interest-based counterpart, NII can be a reliable port during even the most turbulent of economic storms.
Aside from a continued focus on business continuity, credit unions are also staring down potentially disruptive clarifications to Reg II, the implementing regulation of the Durbin Amendment. As card-not-present (CNP) transactions continue to grow, the Federal Reserve is seeking to clarify that CNP transactions must comply with Durbin’s prohibitions on network exclusivity and routing restrictions.
While Strategic Link partner CO-OP Financial Services is a big fan of trying new things, it also strongly advocates for leveraging existing strengths. For debit card issuers, interchange income is one such strength. Optimizing revenue from the debit card portfolio is among the most efficient ways of earning unprecedented levels of NII volume, while keeping member best interests in mind.
Here are four strategies for doing precisely that, each cultivated from the experiences of CO-OP’s SmartGrowth Consultant Services team.
- Simplify network relationships.
Credit unions that want to boost debit card interchange may find that consolidating network relationships to one major brand, such as Visa or MasterCard, and one unaffiliated network, such as CO-OP Pay, may do the trick. Streamlining partnerships benefits credit unions in two ways: 1) It gives merchants fewer options for least-cost routing. 2) Concentrated volumes set credit unions up for better network agreements.After consulting with CO-OP’s debit network experts, Five County Credit Union in Maine made network changes that ultimately spiked its debit interchange revenue 22%.
- Put a stop to auto renewals.
It is not uncommon for a credit union cards team to discover auto-renewal terms within their network contracts. Many are under the impression their network agreement is coterminous with their debit processing agreement. This is not always the case. Indeed, CO-OP continues to hear from credit unions that are surprised to learn of different terms for network agreements vs. processing agreements. Even when those agreements originate from the same vendor, one may include easy-to-miss auto-renewal notifications, a circumstance that certainly reduces negotiating power.As soon as possible, cards teams should review their existing contracts to see if they are governed by such rules. If auto-renewal terms are in place, the credit union has options. One is to serve the network with a non-auto renewal notice to prevent contract terms from rolling over while the credit union conducts its due diligence to streamline agreements.
- Ramp up top-of-wallet strategy.
Regardless of network agreements, every credit union must continuously check in on its top-of-wallet strategy to ensure it’s on par with fast-changing consumer expectations. This is truer now than ever, as the metamorphosis of physical wallets into digital ones accelerates exponentially.
Achieving top-of-wallet positioning today can take many shapes depending on what is most important to priority stakeholders:
- If the digital experience is most important to a membership or a key segment of it, credit unions should look into enhancements like digital wallet integration, card controls/alerts and digital card issuance.
- If rewards are paramount, credit unions can work with leading providers, like CO-OP, to integrate features like real-time cash back and real-time redemption.
- Marketing strategies, such as data-driven campaigns to earn the default position with e-commerce merchants like Amazon, are another way to ramp up top-of-wallet strategy.
The most successful card issuers take an agile approach to top-of-wallet and are enthusiastic about frequently surprising and delighting cardholders with modern features. That’s how the best issuers continuously exceed expectations and earn primary financial relationships with more cardholders.
- Leverage CO-OP’s collaborative approach to debit processing.
Interchange income is a crucial piece of every debit-issuing credit union’s NII pie. It is worthy of the extra attention and strategic maneuvers necessary for optimization. That is why CO-OP’s strategists are continuously looking ahead to changes in market realities, cardholder preferences and behaviors, network rules and federal regulations. It’s how they ensure their team is helping credit unions make the right maneuvers at the right time.