Now that the deadline for the Durbin amendment interchange capto take effect has passed, financial institutions are continuing todevelop ways to offset lost interchange revenue. One solution?Raise fee income by making debit and ATM transactions moreexpensive for consumers.

As banks begin eliminating free checking, increasing theirdebit transaction fees, raising their ATM surcharge fees andcutting their debit rewards programs, many credit unions areseizing an opportunity. They are promoting the benefits of theirdebit programs, hoping to lure consumers away from banks andincrease their market share.

Card Services for Credit Unions, the association of creditunions that processes card transactions with FIS, is encouragingits member CUs to leverage the regulatory changes by continuing tooffer attractive, beneficial product sets, which could help turnbank customers into CU members, said Bill Lehman, CSCU's vicepresident of portfolio consulting services.

“In light of the new debit interchange legislation that willdrastically reduce debit interchange income for larger financialinstitutions, the larger banks are aggressively looking foralternative sources of revenue,” Lehman said. “Two of thosealternative sources include discontinuing free checking accountsand making major changes to their debit card programs. A majorityof credit unions see this current bank trend as an opportunity tocapture market share. And, since most credit unions are exempt fromthe interchange legislation, they have the opportunity to maintaintheir free checking accounts and benefit-rich debit cardprograms.”

Mary Isaacs, executive vice president and chief financialofficer for the $832.5 million, La Crosse, Wis.-based Altra CU,said her credit union's best immediate defense against the Durbinamendment's impact is to push debit card use among members. The CUis promoting a number of creative debit products and programs, somealready in effect and some in the works.

One popular debit product at Altra CU is the “instant issue”unembossed debit card, which members can pick up at a branch anduse the very same day. The idea behind the instant issue card isthat it increases debit use thanks to convenience–since membersdon't have to wait for the card in the mail or activate it over thephone, they're likely to start making purchases more quickly,Isaacs said.

Altra CU also plans to push its prepaid debit card, as theDurbin amendment does not affect prepaid debit purchases, Isaacssaid. And the prepaid card carries several additional benefits.It's preloaded with cash, so it helps members control theirspending and poses less of a risk if stolen.

The CU is considering the introduction of a “second chance”payment card: a prepaid debit card that holds a limited balance andcan only be used for PIN transactions. Altra CU is also working ona debit card that members can personalize with photos.

Isaacs said if the CU's debit program income does becomethreatened, the CU would most likely market its credit cardprogram. She noted that generally speaking, members don't favorchecking account fees, as small as they may be.

“We want to hold out as long as possible before adding fees toour debit and checking products,” Isaacs said. “Once we get to thepoint where we're trying to limit our debit transactions, then it'sa whole different ball game.”

Baxter Credit Union, a $1.5 billion CU based in Vernon Hills,Ill., is touting the benefits of its points-based debit cardrewards program at a time when many banks are dropping similarprograms, ATM/Debit Manager Lori Reiss explained.

Participants of Baxter CU's rewards program receive one pointfor every $2 they spend in debit signature purchases; points can becombined with points they earn through credit card purchases andredeemed for travel and merchandise rewards. To attract more users,Baxter CU recently eliminated the five-year expiration date itoriginally tacked onto its reward points.

“This is an opportunity to promote the rewards and benefits ofour program and increase debit usage among our membership,” Reisssaid. “Our program allows them to use the payment option that'sbest for them and still be rewarded.”

Fees associated with Baxter CU's debit and ATM services haveremained the same for many years. Members are charged $1.50 pertransaction when they surpass between five and 10 withdrawaltransactions per month at a non-BCU ATM, depending on the type ofaccount.

PSCU Financial Services, which is partnered with both Altra CUand Baxter CU, urged credit unions to zero in on its debit programsas the interchange cap deadline drew near. Ron Silvia, PSCUFinancial Services' vice president of debit, ATM and prepaidservices, said while there may be downward pressure on theinterchange revenue that the institutions exempt from theinterchange cap (those with $10 billion or less in assets) receive,most of them remain reluctant to add or increase fees. On the otherhand, banks are talking about fees and consumers are starting totake notice, he said.

“Consumers have been hearing from banks and the news media aboutnew transaction account fees as well as increases on existingfees,” Silvia said. “It's an ideal time for credit unions toexploit the opportunity to gain market share and increase theirmembership base.”