While optimizing value for clients is the primary focus of credit unions, financial survival also requires CUs to generate a certain amount in annual earnings. Debit and credit card interchange revenue usually deliver a sizable chunk of most CUs’ non-interest income. As this is arguably one of the biggest avenues to generate revenue it’s important to keep it coming in, regardless of changes in the financial industry or disruptions caused by technology.
Influences on Interchange Revenue Erosion
The financial environment is more fluid than ever, and there is a major shift underway that impacts sources of interchange revenue. It has been brought about mostly by technological innovations but it isn't limited to them. Here are a few examples that are exerting influence:
- A general lack of trust by some consumers in the payments system due to increased card fraud, online card theft and deep insert skimming. This could contribute to erosion as these consumers scale back their use of cards as they become more concerned about fraud.
- Rising use of (and improvements in) direct billers and merchant ACH facilities. As the options for paying bills becomes more diversified, so are the means by which the consumers can pay them. The choices they make directly impact whether your credit union gains or loses interchange revenue.
- Virtual currencies such as Bitcoin, Dash, Monero and others. These are alternative means of payments that chip away at the transactions that are traditionally paid for with credit or debit cards and are particularly well suited for online transactions.
Whatever the cause, your debit and credit card interchange revenue could keep dropping unless you respond to these changes with innovations of your own.
New ways to Encourage Card Usage
Countering these impacts to your revenue requires you to find new, innovative ways to increase the use of credit and debit cards, and it depends entirely on the customer which card he (or she) uses in different instances. So, how do you get the consumer to choose your card? In the past, CUs have helped to influence card choice with rewards programs, business/travel oriented cards, and high-limit premium cards. These helped providers achieve “top-of-wallet” status and get the consumer to choose a particular card—preferably one he keeps close at hand so he can use it first—because that’s the only way to earn debit and credit card interchange revenue. With the advent of digital wallets, however, top-of-wallet has taken on a new meaning, which has the potential to be a game changer.
Aiming for “Top-of-App” Status
Consumers are now increasingly using mobile and digital wallets to store cards, and it’s altering the way they experience making payments. With more and more mobile apps appearing, users have a choice of a wide range of options, many of which aren’t linked to a particular financial institution. Most apps ask users to select a default card to present, or they simply assign default status automatically to either the first card loaded or the card most recently added.
Also being included in the definition of "app" are a wide variety of online platforms. Consider the wide variety of Internet-based services that are emerging like Netflix, Xbox Live and Amazon Prime to name just a few. These involve presenting the consumer with a choice for what payment source will be the default method of payment for each transaction.
Boost Debit and Credit Card Interchange Revenue
For institutions looking to boost their debit and credit card interchange revenue, “top-of-app” is undoubtedly the status you want your card to hold. Some ways to get there are:
- Making sure your rewards program functions the same way (or better!) when used through an intermediary like a mobile app.
- Analyzing data from your card holders. Where are they doing most of their shopping? Which payment apps are they using?
- Finding new ways to facilitate the use of your card on the most popular mobile apps and online platforms. This could include educating customers on the security of enrolling your CU’s cards in payment apps, making it easier to change the default card, or offering access to other account data connected to their card.
- Increase your card’s value to account holders by adding features like transaction texts and other analytical tools.
Keep your competitive edge and increase your debit and credit card interchange revenue by being constantly on the lookout for new ways to achieve top of the app status.