PETERBOROUGH, N.H. While credit unions and other analysts try to make sense of what a court ruling striking down the Fed’s 2011 interchange cap of 21 cents might mean, at least one analyst sees an even lower interchange rate benefitting most credit unions.
Tim Kolk, owner of TRK Advisors, told Credit Union Journal a lower cap for the big FIs “greatly advantages every debit issuer of less than $10 billion in assets. That would be a regulatory gift to virtually all credit unions and smaller community banks. It provides a competitive advantage that, fair or not, they could really use to improve their member value propositions compared to banks.”
There may be downward pressure on debit interchange rates overall, acknowledged Kolk. “That bothers many credit unions, but they really should instead focus on the marginal difference between their rates compared to their large bank competitors that is where they can develop strategies on how to win. Banks will have to reset their value propositions and when they do customers will be more open to a change.”
But Stan Hollen, president of CO-OP Financial Services, Rancho Cucamonga, Calif., sees another potential outcome if the big banks see their debit interchange cut further. “Look at Canada; for Interlink the consumer pays a fee. Today in the U.S. we swipe our debit cards and we don’t pay a fee, the issuer absorbs the cost. That could change. It is not outside of the realm of possibility that if this trend of cutting debit interchange keeps going that banks will say they can’t absorb this cost anymore and pass it on.”
