Take Action on Interchange Legislation

New Celent report suggests three action steps

June 3, 2010

Credit union grassroots advocacy regarding interchange legislation continues at a brisk pace. CUNA is asking credit union backers to urge their legislators to oppose federal intervention into the current interchange rules.

An amendment offered by Sen. Richard Durbin (D-Ill.), which was successfully added to the Senate's regulatory reform package, would direct the Federal Reserve to issue regulations to govern interchange fees charged for debit card transactions. CUNA recently said this rule change forces the Fed into the role of a price-fixing body, when interchange fees should be driven by market forces.

The pending interchange amendment would require government intervention in what is now a free-market process—setting the rate of interchange fees merchants pay for the benefits associated with electronic payments.

CUNA President/CEO Dan Mica hand-delivered a letter for U.S. Treasury Secretary Timothy Geithner urging him to protect credit unions from becoming collateral damage as a result of interchange provisions included in the Senate's regulatory restructuring legislation, which is pending consideration by a House and Senate Conference Committee.

“Despite the uncertainty of the situation, issuers need to explore different scenarios and start preparing now,” says Zilvinas Bareisis, author of a briefing paper—U.S. Debit Interchange—recently released by Celent.

The Celent report says card issuers should take a number of actions:

1. Weigh your options in light of all the recent changes to regulations and other developments: interchange legislation, Regulation E, CARD Act, Regulation Z, and MasterCard’s ATM fee changes.

2. View the member data in your card portfolio holistically by examining member account balances, debit card transaction profiles, and credit card holdings. It’s easier said than done because it means you have to break down your organizational silos.

3. Seek alternative revenue sources and cost savings through:

  • New offerings, such as mobile wallets.
  • Unbundling and charging explicitly for existing services, such as transaction authorization and member statements.
  • Influencing member behavior by introducing minimum account balances, servicing fees, and other strategies.
  • Shifting some costs to different parties by, for example, getting the merchants to fund the reward programs. If done correctly, this concept is not too far-fetched.

For example, Cardlytics has developed a technology that enables merchants and financial institutions to analyze transaction data to segment the card customer base and offer users targeted rewards via the institutions’ online banking Web sites.

There is significant value in making merchant marketing more targeted—something they’re generally prepared to pay for.

CUNA recently established a relationship with Celent to provide affiliated credit unions with access to Celent’s research reports at significantly reduced rates. Learn about the CUNA/Celent venture and review Celent’s reports.