Steps To Take In Planning For Reduction In Interchange Income
CLEARWATER, Fla. — Bill Lehman, VP of portfolio consulting for CSCU, is offering these steps for credit unions to consider to address reduction in debit interchange revenue.
Debit cheaper than checks: "Recognize that debit card transactions are cheaper than processing a lot of checks," Lehman said. "There should be plans within your account structure to give credit for debit transactions and penalties for high check usage."
Fee, not free: "Don't get me wrong," said Lehman, "I truly understand fees are hard to accept and even present to the board. But we have to have the challenging conversations, start to reinvent some of our philosophies and our revenue structure."
That means considering transaction fees, annual fees, ATM surcharges, card replacement fees, and inactivity fees. "You don't have to do all of them and you don't have to charge market rates. The average annual credit card fee is $39. Charge $10 to $25 and waive that fee if there is specific account activity."
Leverage card processors: "Many credit unions have multiple processors. There may be an opportunity to leverage one, consolidate, and get better pricing and economies of scale. You can create better efficiency within your own shop by streamlining and save some HR dollars as well."
Outsourcing: What is the credit union investing in, a process or a procedure? That's a question Lehman said CUs must be able to answer for every business area today and then determine if a function is better delivered through outsourcing. "How much time, HR resources, and office space are we dedicating to collections, for example."
Penetration, activation, and usage: "One quick way we can compensate for a loss of interchange revenue is to increase card penetration," advised Lehman. "Get more debit cards in the hands of members and get more of them using them more often."
Focus on credit: "Get your members to use their credit card more often," said Lehman. "What do you think Chase is doing by putting a $50 or $100 transaction maximum on debit? They are encouraging customers to put larger-ticket items on credit to make more interchange. We can start incorporating those strategies as well."
Revaluate rewards: Lehman believes there has never been a better time for credit unions to offer rewards for credit and debit, as banks do away with those programs. He advised, however, revaluating rewards to make them more economical. "That may include merchant funded. What about relationship rewards? Utilize rewards across all your products and services. That increases loyalty."
Lehman noted that strategy also spreads the cost of rewards over a number of revenue sources. "For example, loans. If you give rewards points for taking out a car loan, some of the expense for the rewards should fall under the car loan umbrella. It makes rewards more affordable for the credit union."
Protect against fraud: Make sure fraud detection and prevention processes and procedures follow industry best practices, Lehman reminded.
General purpose reloadable cards: "This is a great way to jump start revenue," said Lehman. "These cards are excluded from interchange legislation and are gaining traction. Start promoting them to the underbanked, students, and for travel."
Manage vendors: "Make sure that every product or service purchased from a vendor is effective," offered Lehman. "Don't assume they are effective." Lehman cautioned against assuming a product that works for a number of credit unions will work for all. "Products and services play differently with different memberships. Make sure you are measuring and getting the biggest bang for your buck."
Today's Letter is 'E': Lehman encouraged setting new pricing to further encourage use of electronic services over a live person.