In the five years since the Durbin Amendment to the Dodd-Frank Act took effect, credit unions have been stymied in its efforts to maintain its interchange income.

Yet, for most credit unions, it's the amendment's unpredictable and potent aftershocks that are triggering the most anxiety, as noted by CUNA and other organizations.

Specifically, credit unions are now burdened with the task of keeping up with interchange regulations — rate adjustments, ongoing legal challenges, and other developments — without knowing when the bleeding will stop.

The Electronic Payments Coalition estimates that retailers have brought home $36 billion in additional profits since the Durbin Amendment price controls went into effect, and are expected to make billions more. In the meantime, credit unions have had to foot the bill. Federal Reserve data reveals that the average interchange fee for exempt issuers has fallen 16.6% for PIN transactions and 5.2% for signature transactions. Countless other studies performed by credit union think tanks and industry associations have underscored the reality of the financial losses.

Keeping up with interchange is especially burdensome for the small to midsize institutions already grappling with other challenges — such as an ever-changing lending environment and the need for upgrade to EMV standards.

While the fight to modify interchange regulations through bills such as H.R. 5465is ongoing, credit unions have been forced to exist in survival mode. In addition,as multiple credit union organizations have noted, generating noninterest income through payment activities such as interchange, is critical to credit union survival!

Considering this, how do credit unions continue to navigate a post-Durbin Amendment reality while controlling their bottom line – when they can no longer control merchants' routing preferences?

As every credit union's roadmap to sustainability and growth is different and the answer isn't so simple.

For this reason, one option credit unions should consider, is aligning with a third-party network partner, which can help an institution navigate existing POS interchange regulations as competition grows, technology morphs, and regulations evolve.

There are many potential benefits to this approach. For example, the right network partner can serve as a consultant by helping a credit union streamline or expand payment solutions — mobile, debit card, credit card, etc. — to improve an organizations' operating costs, and bolster member satisfaction.

In addition, the right credit union network partner is well-versed in the types of scenarios that can affect transaction routing and interchange income and expenses, and therefore, can leverage this expertise in negotiating interchange rates with merchants.

Another option credit unions should consider is seeking out new income opportunities to negate some of the interchange losses.

A third-party network partner can also aid in this capacity, by not only working to ensure a credit union keeps as much interchange income as possible, but also by seeking out new income opportunities.

As financial institutions continue to navigate uncertain territory in an ever-changing interchange environment, aligning with partners to help you steer smoothly through choppy waters, can make a huge difference in an organization's solvency. Minimizing interchange-induced stress, will give credit unions more time to focus on what really matters most – keeping its members happy.

Instant Insights /

Credit Unions Navigating Interchange Opportunities, Challenges

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