Debit Card Profitability & Interchange Income
Controlling and managing your debit card portfolio is paramount to your profitability, and vendor management is key. Debit card interchange for community financial institutions can be one of your most profitable assets if properly set up. Other points of study include:
- PIN POS Industry network (low interchange rates) volumes are growing and signature volume (high interchange rates) are declining
- Interchange income is decreasing because more transactions are being routed using the Pinned POS network rails
- PIN POS networks have expanded their use of PINless debit transaction rules
- Every network processor requires the issuer to abide by the network rules as a condition of participation in the network
Right now, processor network rules, acquirers, and merchants have the income advantage, because vendors make things purposefully complicated. The result is that issuers are feeling helpless to do anything about it, but it does not have to be that way.
Pin-less Debit Program Rules
Networks have arbitrarily changed the parameters of transactions that qualify for PIN-less debit routing. Consequently, any transaction that meets the requirements will be switched and settled as a PINned transaction, but more rules are in place:
- Customers don’t get the option of a signature transaction at the point of sale resulting in less interchange income for the issuer
- Setting top-end parameters slightly higher than average. Also, some processors have expanded the application of PIN-less debit transaction rules to a variety of transaction types.
- Networks are shifting risk/liability of a transaction from the merchant to the issuer
PIN-less debit rules are not issuer friendly, and something needs to be done before the situation becomes too big for community financial institutions to do something about it. The fear is that they are no longer are in control due to a lack of market competition.
Are You Making Less Money on Your Debit Cards Than You Should Be?
Community banks had been relying on non-interest income to help drive earnings, but during 2016 debit card interchange income dropped significantly. Some of the issues surrounding the drop in income included:
- The Durbin Amendment capped interchange income of banks greater than $10 billion in assets
- The Durbin Amendment provided merchants a cheaper routing option for pinned debit card transactions
- PIN-less debit programs and the re-direction of signature transactions away from the card networks and through network switches and paying less.
With the PIN-less debit programs gaining traction, the signature percentage dropped down, Processors have changed the parameters and rules, thus reducing interchange income.
How Your Financial Institution Should Profit From Debit Card Interchange
The debit card has become the retail payment instrument of choice for most consumers. With the implementation of the branded debit card programs such as MasterCard and Visa, the card is accepted just about anywhere.
Some of the ways your financial institution can profit from the trend of debit cards include:
- Earn a higher level of income with debit card signature transactions
- Getting away from EFT processors that do not offer signature transactions
- Compare the fees you receive with what you used to receive
The Copper River Group
The Copper River Group are experts in the financial industry, helping community banks and credit unions with:
- Consulting Services
- Bank Technology Consulting
- Debit and Credit Card Portfolio Profitability
- Debit Card Brand Agreements
- On-Demand CIO Services
- Strategic Contract Negotiations
- Vendor Management
We work for you at an affordable flat rate and guarantee to save you money on your vendor contracts. We can help make your debit card portfolio profitable. Contact us today or ask for a reference.
