Credit unions join forces to keep debit card costs under control

Co-Op Solutions

Scale can be a key factor in gaining leverage over payment processing charges, an advantage a credit union service organization is hoping to replicate through a debit collaboration. 

Co-Op Solutions recently launched the Co-Op Pay Network to control fees via collective bargaining, thus improving payment revenue margins for credit unions. The STAR Network is the debit routing network in Co-Op Pay.

Co-Op Pay is an effort to match larger banks' ability to use size when negotiating with payment networks. It also resembles recent moves from large merchants to push back on transaction fees. 

"The big thing for us is this provides some insulation from the impact of fees," said Dean Michaels, chief strategy officer for Co-Op Solutions. "We're taking the scale of the credit unions to bargain, and we can also add more functions for our members."  

Credit unions that participate in Co-Op Pay will have their debit transactions run through the STAR debit network, which is unaffiliated with Visa and Mastercard and covers six of the largest 10 U.S. merchants. STAR also covers 134 million consumers, 2 million ATMs and more than 5,700 financial institutions. Fiserv, which took over the STAR network as part of the bank technology company's acquisition of First Data in 2019, did not provide comment by deadline. 

Co-Op has negotiated terms for credit unions, including protection from price increases, no termination fees, no network logo on the back of debit cards and access to STAR predictive fraud scores. Co-Op Solutions' existing network has about 1,800 credit unions, which will have immediate access to Co-Op Pay. The product is also available to credit unions outside of Co-Op's membership.

Scale is often a big part of payment fee negotiations. In 2016, Walmart temporarily stopped accepting Visa cards in Canada as part of a payment fee dispute. And more recently, in 2022, Amazon temporarily signaled it would ban Visa cards in the U.K. and other regions, a move that was likely part of fee negotiations. But collective bargaining over payment levies has not always worked. A group of large Australian banks tried to collectively bargain with Apple over payment fees in 2017, though the Australian government did not allow the move out of concerns the banks could collude on other issues. 

"Co-Op's move does offer simplified access and a single point of contact at Co-Op for help with things like billing, disputes, and other issues," said Zil Bareisis, a senior analyst at Celent. "Perhaps even more importantly, Co-Op has leveraged the scale of its credit union members to negotiate special terms to join the network, with advantages such as a negotiated fee structure, and protection from frequent price increases."

Co-Op is trying to address what it says are rising costs to offer a debit program, as merchants pursue lower-cost debit routing options while credit unions also face pressure to add digital payment technology. Co-Op Pay will pool funds to invest in technology, loyalty programs and fraud prevention in addition to negotiating with merchants and payment networks. 

Servicing is part of the program. When participating credit unions or their members have issues related to debit transactions, Co-Op fields their queries. 

"Financial institutions need to have separate relationships with debit networks," Michaels said. "This pooling of resources will make it much easier for credit unions to interact with the network."

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Co-Op Pay will not be a brand. The debit cards will carry the brand of the member credit unions.

Co-Op Solutions has used its scale in the past to broker a deal with the bank-led Zelle P2P network to extend access to credit unions. The organization rebranded from Co-Op Financial Services 2022, to reflect its migration from shared services such as contact centers to an organization focused on expanding technology among credit unions. 

Credit unions are under financial pressure on two fronts. Institutions are turning to artificial intelligence and other innovations to boost service and achieve other efficiencies, while managing pressure on their balance sheets resulting from the pandemic and lingering economic uncertainty. Easing payment costs due to fee hikes or unexpected charges could mitigate some of this pressure. 

"This type of arrangement should benefit credit union members if they can get lower prices and higher interchange compared to what they can negotiate in a direct relationship with a PIN network," said David Shipper, a strategic advisor at Aite-Novarica, adding the inclusion of a non-Visa and Mastercard network allows the credit unions to follow rules that require non-card network options for debit routing.