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To offset losses in a weak economy, credit unions need to identify other financial efficiencies, including how to maximize ATM and debit interchange income, which adds up to about 19% of a credit union’s noninterest revenues.The first step in “finding your quarters” is to analyze your point-of-sale network relationships. How many do you have? How many do you need?In the past, the payments landscape was such that credit unions needed to belong to many different networks to ensure that your cardholders had 100% accessibility to their funds. Even today, it is not uncommon for a credit union to have as many as nine or 10 network relationships.Fortunately, consolidation in the network arena continues, which has allowed many regional networks to become national in scope. Overall consolidation in the network arena allows your credit union to contract with fewer vendors. Additionally, a national network can provide the same access as multiple regional networks. Why have one network for Florida, a second for the Midwest and a third for California when you can belong to a national network?Today, credit unions can reduce their number of network relationships and still deliver maximum coverage to their cardholders. Understanding which networks can deliver the geographic reach and value-added services your members need is the key to capturing financial efficiencies for your credit union.Your objective should include choosing one point-of-sale network, a national or regional network for acquired and issued ATM transactions, and a value-added network, offering surcharge-free and deposit-sharing acceptance. Some networks play multiple roles, which is why this evaluation is so important. For instance, fewer networks will reduce your overall network expense and mean less logo clutter on the back of your ATM and debit cards. Choose surcharge-free and deposit-sharing networks where your credit union doesn’t reimburse or pay the surcharge-free expense.If you can achieve 100% accessibility with fewer network partnerships, you will find your quarters.Of course, there are exceptions to this based on your membership demographics, including members in the military or members living abroad. In this case, you might consider also having an international network like Interlink or Maestro. When you belong to fewer networks, you will reduce the number of processor-related fees, like membership fees, monthly fees, annual fees and varying switch expenses.Additionally, because interchange rates are set by each network, it is important that your analysis consider all of these variables so that you can partner with the networks that yield the highest return to your credit union.Although the landscape has changed, there’s no hard-and-fast rule to tell you which networks are best for your credit union. This is something you will need to determine.The critical variables to consider when assessing your network relationships are:oWhere are your ATMs located, and do they accept shared deposits?oWhere are your members located?oWhat are your members’ spending patterns?oWhat are your PIN debit versus signature volumes at the POS?oDo your members prefer to get cash at an ATM or cash back at the point of sale?What you discover can have a positive impact on your profitability. For example, if you’re issuing NYCE, Star and Pulse, and your members are primarily in Florida, why are you using all three? In this case, it would be in your best interest to go with the network that charged you the least per transaction (switch fee).Similarly, if your credit union spans into multiple states and you’re using regional networks to achieve full coverage, wouldn’t it make more sense to go with a national network instead of paying multiple membership fees?Once you have an idea of how many networks you need to deliver complete accessibility to all of your members, you’ll want to choose those networks that charge you the least amount per transaction and yield the best interchange rates.As important, choose a point-of-sale network partner that maximizes your net interchange revenue (interchange minus switch fees).For a POS transaction, interchange flows a little differently. A key consideration is that because the merchant decides priority routing of the networks available, having more networks on your card allows the merchant to dictate the network route and ultimately the amount of interchange your credit union will earn on that transaction. The merchant will route the transaction through the cheapest network; therefore, your credit union will earn less than it might have otherwise. If your credit union utilized only one POS network, you take back control over your PIN debit interchange.

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Peter Westerman


Credit Union Times

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