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“This is your debit card wake-up call!”

It’s not your imagination. You are making less money

Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission. Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission.

If you are a community bank and you have been relying on non-interest income to help drive your earnings, you have learned that during 2016 your interchange income dropped big time.

If you have not been watching your interchange income, you just got a yearend wake-up call in your general ledger account.

Of course, this wake-up call was followed by the question: What’s going on here?

Or words to that effect…

Your first response is to pull the interchange reports from your processor, run the numbers, and try to figure it out. Next, you call your brand—MasterCard and/or Visa—and ask them, why?

They send you back to your processor.

Sound familiar? The most common response you receive is that the Durbin Amendment of Dodd-Frank is the culprit.

Not so fast! There is more to this trend—and you are not going to like it.

Durbin Amendment impact

Taking a step back in time, the Durbin Amendment was a compromise that capped the interchange income of banks greater than $10 billion in assets.

The intent was to preserve the income stream for community banks, but cap the massive interchange earnings of the large banks. Right or wrong, it is what it is.

The second compromise of the amendment was to provide merchants a cheaper routing option for pinned debit card transactions.

Hence the two PIN-POS choices on the debit card, and from my perspective, that’s fair.

PIN-less debit programs

The real culprit, however, is at the processor, with PIN-less debit programs and the re-direction of signature transactions away from the card networks and through network switches and paying less. [See my earlier blog, “Signature Preferred not available here!”] 

The net negative impact on your interchange income impact is huge.

During 2016 issuers (banks) that traditionally relied on signature transaction interchange income have experienced a huge decline and a volume shift from signature transactions to pinned transactions—even with debit cards being configured as signature preferred.

A typical volume split for our clients who implemented a signature preferred debit program had signature at about 80% of the total transactions, generating a tremendous amount of income. At least, that’s how it was.

However, with the PIN-less debit programs promulgated by processors gaining traction we have seen the signature percentage drop down to less than 65% of the total transactions or more.

And the trend is continuing. Processors have changed the parameters and rules in order to divert even signature transactions through the PIN-POS networks thus reducing your interchange income.

And we know how. More about that in my next blog in this series, "Did you actually read your debit processing contract?"

—The Wombat!

Dan Fisher

Dan Fisher is president and CEO of The Copper River Group, a consulting firm headquartered in Fargo, N. D., that focuses on technology and payment systems research and consulting for community financial institutions. For nearly 30 years, Fisher has worked in the financial industry using technology to improve the bottom line. He was CIO of Community First Bankshares (now part of Bank of the West), has served as a director of the Federal Reserve Board of Minneapolis, the chairman of the American Bankers Association Payment Systems Committee, and was a member of the Independent Community Bankers of America Payments Committee. Fisher has written numerous articles on banking technology and the payments system. He has authored or co-authored six books and recently published a book titled, "Capturing Your Customer! The New Technology of Remote Deposit." You can contact Fisher at [email protected] or at 701-293-6222.
P.S. To understand Dan's nickname, check out "About the Wombat" on his website.       

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