Operations

Act Now on Interchange Issue

Expert offers nine steps to recoup lost interchange income.

May 02, 2011
KEYWORDS card , credit , debit , interchange
/ PRINT / ShareShare / Text Size +

Bill Lehman’s advice to credit unions waiting to see how the debit interchange fee debate will pan out: “Take your foot off the brake.”

In other words, don’t wait for the Federal Reserve Board’s final interchange rule or for legislation delaying its implementation to determine how to recoup millions in lost debit interchange income.

“Make changes today, understanding there will be ongoing pressure on our industry,” urges Lehman, vice president of portfolio consulting for Card Services for Credit Unions. “Whether the interchange rules are delayed or refined, our revenue will be attacked. Decide now how you’ll execute.”

Under the Fed’s proposal, interchange fees will decrease from an average 44 cents per debit card transaction to 12 cents, CUNA reports. “That doesn’t begin to account for the actual debit card service costs, such as those related to fraud and systems support,” notes CUNA President/CEO Bill Cheney.

Although financial institutions with less than $10 billion in assets (all but three credit unions) are exempt from the proposal, Cheney calls the exemption “fatally flawed” because there’s no mechanism for enforcement or oversight.

“Over time, smaller institutions will lose out, too,” he says. “Market pressures will force the interchange price that smaller institutions receive toward the lower, 12-cent rate.”

Plus, the regulation’s network exclusivity and routing provisions would allow merchants to route transactions to the lowest-cost network, Lehman explains. Financial institutions with less than $10 billion in assets are not exempt from this provision, he emphasizes.

As a result, credit unions stand to lose two-thirds of their interchange income—a possible $1.7 billion blow, warns Mike Schenk, vice president of CUNA’s economics and statistics department.

CUNA has repeatedly asked the Fed and Congress to “stop, study, and start over” on the interchange regulations—and the message may be getting through.

The House and Senate have introduced bills that would delay implementation of the Fed’s proposal for either one or two years. Both bills propose studying how the interchange fee cap would affect card issuers, consumers, and merchants.

And on March 29, Fed Chairman Ben Bernanke told House and Senate leaders the agency couldn’t meet the April 21 deadline for its final interchange rule. However, Bernanke says the Fed is committed to completing the rules on interchange fees “in advance” of July 21, and completing rules on routing and exclusivity provisions by that date.

While delays in the rule’s implementation are “promising,” Lehman says “they’re not an excuse to put off planning. Start planning today to recoup some of the money you’ll lose in the future. Now is the time to make changes.”

Next: Nine steps to recoup lost interchange income

Post a comment to this story

heroes

What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive