Effective July 1, Reg II (Durbin 2.0) disrupted banks’ income on debit cards. While banks won’t immediately feel the effects that Durbin 1.0 had in 2011, they’re likely to see an 18% to 25% volume shift from signature to PIN card transactions by the end of 2025. And the threat of disruption on credit cards looms large.
Traditionally, bank and credit union card issuers have benefitted financially from the fierce competition between the Visa and Mastercard brands. Yet is now really the time to contemplate an unnecessary brand flip to chase an incentive dollar that may not even exist in 24 months? I know asking this question makes me wildly unpopular with Mastercard and Visa, and I’m OK with that. I don’t work for Mastercard or Visa. I work on behalf of every financial institution in the United States that is seeking a path forward in their card programs and striving to stay relevant in the payments arena.
Several recent events have pushed me past the point of being quiet on this. In no particular order:
A bank should not even be considering a brand flip unless it has a proven strategy in place on the digital issuance of cards with automatic tokenization into the wallet. FIs fought to get to 20% Apple Pay utilization for years – you know, the other product they had to have and then no one used it until, well, COVID? Why start that all over again? A brand change means asking cardholders that have been seamlessly using their digital wallets to use a new card they didn’t ask for and update it everywhere.
Sometimes change is warranted due to situations – a name change, rebranding, M&A, etc. Some institutions are just wowed by the razzle-dazzle of a flip. Either way, financial institutions should answer the following questions prior to pulling the trigger.
There are many more questions to ask but this is a starting point for all the things to consider besides interchange. Change can be good and can often be needed, but unnecessary change in an environment of debit card performance uncertainty is not fiscally wise. I suggest bankers stick a pin in this decision for 18 months and watch their volumes before pulling this trigger. In the meantime, focusing on delivering all the other card experiences like digital issuance, alerts, controls, mobile disputes and self-service card management can deepen customer loyalty and help cut down some of the noise.
Brandi Gregory is managing director for Cornerstone Advisors’ Contract Negotiation & Payments practices. Follow Brandi on LinkedIn.