Despite Interchange Income Loss, Lawsuit Settlement Heralded
ATM, credit and debit card processors and networks said that despite the pending potential reduction in interchange revenue resulting from the recent VISA and MasterCard lawsuit settlements, the fact that the two giant credit card associations have inked agreements is a good thing for credit unions.
"Most financial institutions are very happy to see signature-based debit transaction because of the higher interchange fee passed along to them, but for the last few years we've been telling them don't count on that," said CO-OP Network CEO Robert Rose, whose firm has been predicting VISA and MasterCard would end up settling the dispute with Wal-Mart and other major retailers rather than let it go to court. "Had it gone to trial and the card associations lost, we'd be looking at a much uglier situation for all financial institutions. And since these deals call for a 10-year payout, that probably means (VISA and MasterCard) won't have to assess their members anything. Yes, it's going to mean a loss of interchange income for credit unions, but the settlements are a good thing. It will calm the whole market. The payments arena has been very volatile, and a calming effect on the marketplace is very good for everybody."
In Tampa, Fla., PSCU Financial Services agreed. "Right off the top, credit unions will see a reduction in interchange revenues," said Ron Silvia, director of debit services for PSCUFS. "We are getting ready to announce workshops for our member credit unions to talk through ideas and look at how members are transacting today."
And that's a good thing, because too many credit unions don't have a good sense of how their members are using their cards and haven't been paying attention to the network they're affiliating with and how that affects their business, Silvia noted. "Some credit unions really struggle with poor reporting from their processor," he explained. "Historically, credit unions haven't paid much attention to the networks. We will consult with them to show the comparison between one networ or the other. We just formed a parntership with the NYCE network for POS for reduced fees for our members, but we are network-neutral. Our credit unions can work with any of the top 15 POS networks. But now we can help them go through each of their network affiliations and see which relationships are working for them."
Both Rose and Silvia predicted there will be an increase in signature-based POS debit transactions, and while that means less interchange revenue for the credit unions, it should mean greater security for members ducation efforts on the part of credit unions, they said, can make a big difference.
"Credit unions will have to rethink how they assess fees. Foreign (ATM) transactions are the most expensive transactions, and many credit unions don't like to charge fees for that, but they're going to have to take a closer look at that," Silvia suggested. "Credit unions will want to encourage members to start using their debit card, in a PIN-based POS transaction, to get cash back. Charging a small fee at foreign terminals is one way to make that happen."
But what they shouldn't do, Silvia cautioned, is get too aggressive with fees in an effort to make up for the reduced interchange fees. "You have to be very careful charging a fee on the debit card," he said. "The debit card was born and raised to replace cash and checks. If we make it too cumbersome to use, people will stop using the card, and they will go back to cash and checks."
Most members don't know the difference between signature-based and PIN-based debit. Though some may realize that a PIN-based transaction is more secure than signature transactions, they don't know how choosing one over the other affects the credit union. And by and large, most credit unions haven't made a push to influence which type of transaction a member goes for, Rose noted.
Merchants Driving Behavior
But while credit unions may not be trying to get their members to use their cards in a particular way, there is one group that has been: the merchants.
"We see the merchants influencing behavior," Rose commented, noting that merchants have long been encouraging consumers to punch in the PIN because it makes the transaction cheaper for them. But merchants, unlike credit unions, aren't likely to pass those savings on to consumers, he added. "The question will be how merchants respond to the new environment. Hopefully, they will be more willing to accept all forms of payment, but I don't expect to see merchants pass the savings onto their customers. If there is any benefit, it is that they will be more accepting of all payment methods."