Now that the Durbin Amendment is a reality, this might be a good time for a reality check. New caps on debit card interchange income won’t affect most credit unions directly: Institutions with less than $10 billion in assets are exempt. But new regulations related to payment networks apply to all debit card issuers, as will changes to the overall landscape for debit and checking.
For exempt credit unions, CO-OP Financial Services has stated its belief that interchange rates are likely to show little or no decline for the remainder of 2011. For these institutions, the CUSO believes all networks will implement a two-tier system maintaining interchange at rates near the current $0.44 per transaction average. And that means an opportunity for credit unions when debit card usage is up and consumer interest in electronic forms of payment is at an all-time high.
The marketplace is also telling us:
- Banks are considering debit card fees (examples: $25 annually or as much as $4 to $5 monthly) as a way to offset income reductions.
- Consumers are opposed to paying fees for using debit. In an Associated Press poll conducted by GfK Roper Public Affairs, 61 percent of consumers said they would “find another way to pay” if charged $3 monthly for debit card services.
- Debit cards – and the checking accounts they service – remain a primary means of building and maintaining primary financial service status with members. Meeting expectations is critical.
- Discouraging debit card usage is the wrong tack. Encouraging greater debit volume is one way to improve revenue. Among the findings of an excellent study by Filene and the Federal Reserve late last year: Credit unions may also accelerate interest in other, less regulated forms of payment such as credit cards, mobile payments and so on.
“We’re aware that new regulations related to the Durbin Amendment may affect us down the road,” says Jennifer Lehn, executive vice president of Numerica Credit Union in Spokane, Wash. “We’re not taking any significant action right now, but we are taking a close look at the profitability of our checking accounts and the volume of our debit transactions so that we can take action if changes do occur. Ultimately, though, we know that the most important strategy we can follow is to put our members first. Those of us who have been through the challenges of the past few years have been looking at profitability and efficiency. Durbin doesn’t change that.”
“A lot of credit unions, including ours, have been doing things to offset declines in revenue (regardless of Durbin regulations),” says Eric Acree, executive vice president at Vantage Credit Union in St. Louis, Mo. “We’ve been automating processes and providing more self-serve options for our members.” Though not in response to Durbin, Vantage has introduced a new prepaid, reloadable card. “We think it might be an alternative for people who have an ATM card but not debit,” says Acree, “and it may act as a little bit of a safety net if regulations hit us hard.”
Like Lehn, Acree is determined to maintain a focus on member service: “We started the year with the decision that we really need to keep our free checking product,” he says. “We know it’s important to members. To further differentiate ourselves, we’re also adding a merchant-funded rewards program for debit transactions. If others are removing their debit rewards programs, we see an opportunity to differentiate ourselves with a program that rewards members based on where they shop.”