“Imagining myself enjoying new cheese even before I find it, leads me to it.” –Spencer JohnsonThings are certainly changing fast in our industry these days, and bankers may not fully recognize a certain unseen hand at their Cheese Station. While most bankers are well-versed in the impact of the Durbin amendment on large banks, there are market forces at play right now that will dramatically affect the unregulated issuers as well. Unless bankers take action now, it won’t be long before they are all saying, “Who Moved My Interchange!?”
Through our mother ship Cornerstone Advisors, I work within the depths of the debit card industry on a daily basis. April 1 has come and gone and the deadline of the Durbin Network Exclusivity rule has gone into effect. If you’re not completely familiar with the Network Exclusivity rule, let’s do a quick exercise to see if your debit card is compliant. It’s all about the brand (logo on the front) and bugs (“Service Mark” logos on the back). Go ahead, grab it out of your wallet and take a look. If:
So with Visa making changes to take volume from the PIN networks and the PIN networks reducing interchange to compete with the big boys, we are going to see an Interchange race to the bottom. It’s impossible to grasp where the bottom is at this point. To put it into perspective, though, let us say that we do 250,000 PIN transactions per month and our average gross interchange reduces by 4 cents across 50% of our transactions. That’s $5,000 a month in revenue that just evaporated. The one thing I can be sure of is that there will continue to be a lot of moves in the near future and these moves are out of our control. It’s an exciting time indeed to be in the cards sector. We as issuers simply have no power over these guys to stop it. However, in the nature of Sniff and Scurry there are things we should all be doing now to protect our interests in this race:
It’s hardly exaggeration to say your bank’s payment revenue is under attack and being rattled by a bizarre molting period right now. Banks can’t be caught flat footed with all these variables in play. Taking the time and effort to position yourself today could very well put you in an advantageous position tomorrow. So go – “Smell the cheese often so you know when it is getting old.” (Spencer Johnson)
Cornerstone Advisors’ Point of Sale Strategic Execution (POSSE) service can help banks optimize their strategies for card payments in a Post-Durbin world.
Our proprietary analytic tools match opportunity in the cardholder base with pricing in the network world. Being armed with this information is a first step toward maximizing future payments revenue.
Contact us today to learn more about the Cornerstone POSSE.
2 thoughts on “Who Moved My Interchange!?”
Mr. Rackley writes about a fascinating topic that should be very high on every credit union’s and community bank’s list of business model tipping points. Thanks for the lesson and reality check.
Ryan you are right. My grocery bill is not going either. Overall, the current administration imposed an epidemic of 75 new major regulations, with annual costs to the consumer of $38 billion. That’s you and me! The crush of red tape will undoubtedly persist, as hundreds of new regulations including the Dodd–Frank financial regulation law,further weakens an anemic economy and job creation. Action by Congress as well as the President to stem this regulatory surge is essential…but unlikley.