Financial institutions should focus on building their debit card portfolios as they wait for the Federal Reserve Board to determine debit card interchange rate reductions now that the Senate has decided not to delay implementation of the Durbin amendment, suggests a white paper from The Members Group, which does business as TMG, a financial-services provider to credit unions and community banks.
“Banks seem to be taking a wait-and-see approach,” Aris Jerahian, TMG vice president of client relations, told PaymentsSource in an interview. “That’s fine, but start making moves to grow business now.”
Too many banks are viewing decreased interchange rates as a “sky-is-falling” scenario, which is leading to irrational decisions, Jerahian believes.
“Rather than raising [checking-account] fees and stopping rewards, banks can start segmenting [their customers], minimize fraud and capitalize on new technology” such as mobile banking to reduce expenses, he said.
The Federal Reserve Board is scheduled to issue its final rule on a controversial swipe fee provision next week, according to a public notice released June 21 (
Either way, banks should be ready to deal with it, he added.
Jerahian suggested banks start seeking ways to increase transaction volume. Marketing checking-account products to young adults is one way to accomplish this, he wrote in the report.
Jerahian cited Visa Inc.’s 2010 U.S. debit-tracker report that stated more than half of adults ages 18 to 34 consider debit to be the best overall payment method.
“Going direct to these consumers is a great marketing approach,” Jerahian wrote.
Banks also can increase transaction activity by offering customers the ability to personalize their debit cards. Personalization leads to affinity, loyalty and less attrition, Jerahian wrote. “This results in higher card use,” he said.
Eliminating debit card rewards could prevent financial institutions from gaining business from new customers who left banks over lost rewards, Jerahian wrote.
“We’ve trained consumers to use their debit cards,” and while debit rewards are relatively new, consumers expect some kind of compensation, he said.
Merchant-funded rewards programs and on-the-spot discounts generated by location-based mobile applications can help banks differentiate themselves in the market, Jerahian wrote.
Other suggested services banks can explore to counter the effects of reduced interchange revenue include increasing fraud prevention through services such as mobile text-message alerts of transaction activity and making customers aware of these efforts. They also can add a user-friendly, secure mobile-banking component to a debit card program, according to the report.
Cutting costs also is an option, such as by eliminating paper statements, Jerahian wrote.
Banks also should do their best not to increase checking-account fees, which could lead to attrition and lost transaction revenue, the report noted.
Moreover, financial institutions should examine the entire demand deposit account relationship with customers, Jerahian suggested. “Don’t just segment the debit card by itself and worry about the debit interchange,” he said. “Worry about the entire picture of the checking account and what that really means for entire relationship.”
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