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Some processors take away choice—and bank income. The Wombat takes issue

Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission. Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission.

If you had a business line that suddenly saw revenue fall by a third or more, you’d be more than a little concerned. Yet this might be happening to your bank, and you haven’t homed in on it.

I’m talking about fee income from debit card interchange. Some of the community banks that I talk to have seen this source of fee income drop by as much as 35%. I’m going to tell you how, why, and suggest what to do about it.

Debit, the payment method of choice

The debit card has become the retail payment instrument of choice for most consumers. It is so much easier than checks. And with the implementation of the branded debit card programs such as MasterCard and Visa, the card is accepted just about anywhere.

Debit card interchange has become a big income item for community financial institutions under $10 billion in assets, and the volume of that income is growing.

Debit card signature transactions—which travel via credit card “rails”—can earn community banks a higher level of income than PIN-based debit transactions, which travel on point-of-sale rails.

Signature debit income is much higher, as a matter of fact.

Indeed, some institutions prefer the higher-risk signature transactions over the PIN transactions, because of the increased interchange income.

You prefer, but they don’t defer

But did you know that some EFT processors do not make a Signature Preferred option available for consumers, particularly when it comes to the re-issue of EMV debit cards?

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And that they do not tell you?

When you ask about the matter, these processors provide you with a study that claims that PIN-based interchange income was greater anyway. They tell you that you have nothing to worry about.

Bunk!

If that was so, the Dodd-Frank Act and its Durbin Amendment would not have capped interchange for large financial institutions. This was a benefit out of Dodd-Frank for community financial institutions.

I have a real problem with EFT processors restricting your options, not disclosing what they’ve done, and then trying to tell you that PIN debit is better anyway.

It is your business … and your customers.

What business is it of theirs to tell you what to do and how to do it? Has anybody heard about informed consent?

Double dawg dang, what is up with that!?

Oh yeah, they are your partner, they say.

Go figure!

Stealth at the card reader

Take this a step further, now.

Have you heard about PIN-less debit?

Some processors’ terminals automatically send a transaction that the consumer may intend to do as a signature debit through as a PIN-based transaction, moving it through the POS rails instead of the card rails. The consumer is not asked for their PIN, but it goes via that path anyway.

These programs take away interchange from your institution and drive the pseudo (imputed)-pinned transaction to the EFT processor’s switch that they own, increasing their income and scalping yours.

This is not a good thing when it comes to your business model, and vendors making decisions for you. Period.

Here’s what to do

So, next time you get a statement from your processor, look at more than the bottom line. Compare the fees you receive with what you used to receive. You may find this time well spent.

Ask your EFT vendor about what you find. You will probably not like what you hear.

Yeah, I am hot about this, if you haven’t noticed. Give me a call at the number below and I can give you some additional pointers.

—The Wombat!

Dan Fisher

Dan Fisher is president and CEO of The Copper River Group, a consulting firm headquartered in Fargo, N. D., that focuses on technology and payment systems research and consulting for community financial institutions. For nearly 30 years, Fisher has worked in the financial industry using technology to improve the bottom line. He was CIO of Community First Bankshares (now part of Bank of the West), has served as a director of the Federal Reserve Board of Minneapolis, the chairman of the American Bankers Association Payment Systems Committee, and was a member of the Independent Community Bankers of America Payments Committee. Fisher has written numerous articles on banking technology and the payments system. He has authored or co-authored six books and recently published a book titled, "Capturing Your Customer! The New Technology of Remote Deposit." You can contact Fisher at dan@copperrivergroup.com or at 701-293-6222.
P.S. To understand Dan's nickname, check out "About the Wombat" on his website.       

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