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  • Writer's pictureW.B. King

New Co-op Solutions White Paper Takes Aim at Debit Interchange

By W.B. King


Among impacts from the pandemic is that consumers are turning to their debit cards opposed to cash in their wallets, which Visa confirmed in its second quarter 2023 earnings presentation noting that worldwide debit volume grew by 7% year-over-year.

To better understand this trend and how its impacting credit unions, Co-op Solutions recently released the white paper, The Evolving State of Debit Interchange (June 2023).


“For credit unions, debit is a critical component of the financial statement, impacting both the income and expense sides of the equation,” the report stated. “But with increasing competition for members’ wallet share and the potential impact of evolving regulations, the choices that credit unions make today in terms of payment networks, card programs and other factors will reverberate for years to come.”


The Rancho Cucamonga, Calif.-based CUSO operates an interbank network connecting the ATMs of credit unions in the United States and is cited as the largest credit union-owned interbank network in the country.


The report further found that a debit cards help drive comprehensive growth-oriented payments strategies, while serving as an “important source of non-interest income to support innovation and growth.”


The Preferred Card: Debit


Citing a second quarter 2022 survey from S&P Global, the Co-op report noted that 56.2% of consumers preferred debit as their primary payment card, which marks a significant increase from the 40.2% preferring debit in 2021.


And since 2021, debit card usage has increased in the following segments: Gen Z (26.8%), millennials (18.4%) and Gex X (18.6%).


“The growth in debit usage is particularly enlightening when considering how spending habits have changed in recent years, especially among younger demographics,” the report continued. “Nontraditional payment trends like subscriptions, connected ecosystems, contactless, P2P, embedded payments, buy now pay later (BNPL), eCommerce, and mobile wallets took off during the pandemic and show no signs of slowing down.”


Juniper Research, an organization that specializes in identifying and appraising high growth sectors with digital ecosystems, projects mobile and wearable payment volume to grow by 221% between 2022 and 2027, the report noted.


If credit unions understand these spending trends among young consumers, credit unions have an opportunity to design soliton aimed at capturing this all-important demographic, the report offered.


“For credit unions, debit interchange income serves as a natural complement to loan interest income while helping to offset periodic declines in loan volume,” the report stated. “That’s why optimizing debit programs to capture more of members’ daily spending transaction volume is so critical to a credit union’s health and long-term success.”


Earnings, Expenses and Experience


To ensure those credit unions are aligning with the right unaffiliated network, Co-op offered the “3 Es” of credit union sustainability testing: earnings, expenses and experience.

“In addition to the 3 Es, credit unions must also make sure their debit card network configuration complies with Reg II and attendant regulations,” the report noted, underscoring the benefits of the Co-op Pay Network that was created specifically for credit unions.


These regulations, the report stated, included the latest clarification from the Federal Reserve that issuers must enable at least two unaffiliated networks for all geographies, merchant types, specific merchants, and transaction types (including tokenized transactions and digital wallets) in which the issuer participates.



“Notably, credit unions can configure Pay Network to ensure their compliance with Reg II without needing to engage additional back-of-card networks,” the report offered.


Since the debit industry has changed so drastically in recent years, and shows no sign of slowing down, the report said credit union must do their part and act now to offset potential interchange losses and better engage membership.


“This begins with choosing the right unaffiliated payment network to help shore up the expense side of the equation, while focusing on establishing strong relationships with cardholders, using penetration, activation, and usage metrics as a guide,” the report continued. “Payments are the gateway to increasing member interactions and driving growth, and debit will remain an important piece of this puzzle for the foreseeable future.”

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