WEST PALM BEACH, Fla. — Big retailers' actively pushing consumers to PIN-based debit transactions and the advent of Apple Pay continue to eat away at interchange income, but credit unions may be in a better position than the mega banks to deal with these challenges.
Though much has been made of Walmart's recent move to drive consumers to PIN debit transactions, it wasn't much of a surprise, according to Jim Hanisch, VP-network operations and corporate development at CO-OP Financial Services. The bigger issue, he said, is how Apple Pay and its competitors are changing the field.
"What is new is that as [digital] wallets come into play, merchants may take a more active role in steering toward PIN, even more than they have up to this point," said Hanisch.
Retailers and merchants can save about 10 cents per transaction by persuading consumers to opt for PIN debit transactions, according to Brian Scott, VP-sales at The Member Group. He estimated that at the average credit union, a member uses his debit card about fifteen times every month.
"Growth rate-wise, both signatures point-of-sale and PIN point-of-sale are growing. From an industry average stand point, there appears to be an inconsistency as to which is growing faster," said Hanisch. "From our numbers, point-of-sale is growing at roughly 8% per year and signature and PIN are roughly keeping pace with each other."
Hanisch said this all-important interchange issue is a frequent topic of conversation between CO-OP's credit union clients, retail partners like Publix and 7-11 and industry leaders.
"Merchants have a couple of different things they are trying to get done. They are trying to reduce their payment costs and that is understandable, but runs at odds with credit unions," said Hanisch. "And merchants want to gain greater control of the customer shopping experience."
In a continuing effort to broaden the conversation, Hanisch sat on a panel in February at Merchant Advisory Group's 2015 Mid-Year Conference held in Dallas.
"There was productive dialogue with a lot of the large merchants that were there," said Merchant Advisory Group CEO Mark Horwedel. "With regard to the chip and PIN versus the chip and signature, the big merchants and community banks and virtually all the credit unions are much more aligned than the big banks and the big merchants."
Horwedel said the reason that credit unions and community banks are better positioned on interchange than big banks is due to the way in which credit and debit card transactions are processed.
"The big banks process credit card transactions and signature credit card transactions themselves [internally] instead of using a third party like most community banks and credit unions," said Horwedel.
Horwedel added that he is not "buying the spin" that card networks claim: PIN and choice is easier on the customer. "It's a façade obscuring the fact that big banks don't have the capability or want to develop the capability to process PINs on their signature cards."
Because credit unions and retailers have a similar goal — providing services and goods for a fair price — the way to control interchange charges is by dealing with the middle man, Horwedel suggested, pointing to card networks like market leaders Star, Pulse and NYCE.
While such big players are often assumed to have more power in these relationships, Sabeh Samaha of Samaha Associates said that with the right knowledge, approach, process and execution, all third-party relationships are malleable. As such, the issue of interchange fees becomes less about what the retailer is doing and more about the credit union's relationship with its network.
"Credit unions need to talk to and press their [card] networks and get to the point where they can mitigate the impact interchange has on their organization, and that's how we help credit unions — case by case," said Samaha.
As Apple Pay and EMV adoption issues come into play over the coming year, the card payment landscape will continue to change. Hanisch said that while interchange fees will continue to be a focus, credit unions should remain concerned with the goal of staying top of wallet.
"CO-OP is working through various retail organizations to ensure there is a credit union presence representation as systems evolve. We are working very hard in that space right now," said Hanisch. "It's too early to know what will come of it, but we have a lot of good friends in that space on the retailer side and a lot of credit unions that are sponsored by retailers. We are going to continue this dialogue."
And credit unions are not without hope Samaha intimated. "There are options in relation to interchange and there continues to be research identifying options some of which have more favorable outcomes for credit unions," he said. When asked if he referred to interchange rebates or the like, Samaha said he wasn't at liberty to disclose but emphasized that credit unions need to be asking their vendors to help them mitigate this challenge.
