How Financial Institutions Maximize Revenue from Interchange Income

Currently Financial Institutions are experiencing increasing pressure on non-interest income. Forward-looking FIs are investing in maximizing their debit card interchange income to push back against these pressures and promote institutional growth. 

In PRI’s blog, Maximizing PIN Debit Card Interchange, we took a deep dive into the differences in PIN networks and how they affect a financial institution’s profitability. One of the major takeaways is that while the network of the card brand may be forced upon the institution, the other PIN network is entirely up to the FI (not the EFT processor). An FI’s choice of their other network is critical to the overall interchange rate it earns. All networks couple differently due to acquirer/merchant routing choice favoritism, and some will earn top rates for the FI.

Interchange income is an area where PRI’s experts can help drive profitability for our clients. We will examine the importance of interchange income and how to maximize it.

PRI suggests three critical approaches to driving success.

• Treat debit cards as an individual product, not just an add-on to a checking account.
  
  The goal is to displace checks and cash – which cost the FI much more to handle without the benefit of incoming revenue – with the debit card. Again, it’s crucial to choose the correct network stack and include issuer-centric networks. Even though you’re only talking pennies per transaction, that adds up quickly!
  
  The details matter, including the environment of your community, how many big box retailers are in the area and what deals the networks have struck with certain retailers. PRI’s expertise and experience in this space benefits our clients and helps them maximize interchange income.  

• Have a solid marketing and messaging strategy for displacing cash and checks with debit cards and making your institution’s debit card a “top of wallet” product.
  
  This includes having the right checking products that drive good debit card habits, promoting debit cards through every available channel and having the latest technology, such as “tap and go” cards and digital wallets, available to your customers. It’s important to train all customer-facing roles in how to promote and market the debit card. All these efforts contribute to increasing interchange income and institutional profitability. 
  
  “Many frontline employees are unaware of how much income debit cards bring into the FI,” said Mikelle Brady, PRI partner. “This is an opportunity to implement meaningful rewards and ensure your staff understands how the debit card functions so they can explain it to your customers.” When an employee has hands-on experience using the debit card for online purchases, groceries, travel and placing the card on-file at a gym, they feel more comfortable relating this to customers.

• Measure what matters.
  
  If the FI fails to measure its current state by not setting up good reporting functions, it will be impossible to see the results of increased interchange income and develop a strategy for maximizing it.
  
  Good reporting will give the FI insight into the following questions:
  • What is the financial impact of debit cards to the organization?
  • What marketing programs are most effective?
  • Are the technologies linked to the debit card working?

While increasing interchange income can be a complex process, it’s critical in today’s FI environment. Cash and checks are expensive for the FI to move and manage, and they give nothing back to the bottom line. Debit cards allow the FI to maximize revenue through interchange income, improve profitability and encourage growth. It’s worth the investment to do it right.

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.