Many different factors affect interchange income from any given transaction. Consequently, a financial institution’s non-interest income strategy must depend on the payment methods and transaction types their cardholders use most.

First, we’ll look at a few factors that contribute to differences in interchange income. Then, we’ll suggest a couple strategies to improve that income.

Which Factors Affect Interchange Income?

If you work at a bank or credit union, you probably already know how different payment types affect interchange income. In fact, you may know the exact percentages for each! However, if you don’t know all the major factors, or if you want a refresher, we’ve included a quick recap.

1.    Card Not Present Transactions

Card not present (CNP) transactions charge a significantly higher interchange rate than transactions where the card is physically present. This helps to offset the fraud risk associated with not having the card present.

Payments over the phone, online, or on a mobile device thus provide a higher earning potential. Strategies to improve non-interest income can leverage this increased fee.

Strategy: Reaching “top of wallet” means something different today than it did ten years ago. Now, no card can be top of wallet without capturing the $850 monthly average recurring spend. One way to make your card top of wallet is to incentivize putting subscriptions and recurring payments onto your institution’s card. You can read more about how to do that here.

2.    Card Present Transactions

Transactions wherein the card is present—any time a debit or credit card is physically swiped or inserted—result in lower interchange income. This is because the risk of in-person fraud is much lower.

Nevertheless, such in-person and on-premise payments offer good earning potential. Strategies that increase this income can focus on promoting local spending.

Strategy: Leveraging data to understand where your cardholders spend is a great way to promote your card’s use at local establishments. For example, if many people all use the same local grocery story, offer rewards for shopping there with your card. This will also improve your share of wallet.

3.    Credit Card Transactions

Credit cards have a relatively high interchange rate. Like CNP transactions, credit cards charge more to cover potential fraud, disputes, and other tricky payment situations.

However, credit card use in younger generations isn’t very high. So, despite the higher potential for revenue, focusing solely on credit card transactions would be a questionable idea.

Strategy: First, make sure your credit card offers are great. They must reasonably compete with Discover, Capital One, and American Express. Second, incentivize use! White labeled apps such as WalletFi can help financial institutions create attractive, custom rewards for credit card use.

4.    Debit Card Transactions

Debit cards make much less interchange income per swipe than credit cards. However, many consumers—especially younger generations—tend to prefer them.

Improving interchange income on debit card transactions is an important way to bridge the gap between the two types of cards.

Strategy: Besides regularly incentivizing use, run a debit card reengagement campaign for cardholders who aren’t using their cards. Show them the benefits of using their debit cards and invite them to take advantage of the features.

Further Reading

There are many strategies to improve interchange income at your financial institution. WalletFi’s solution helps by doing more than increase non-interest income alone. It also protects interchange on a card during a re-issuance, and it also solves major consumer pain points by providing a better picture of a cardholder’s digital financial footprint, making it easier to manage recurring payments, and reducing the work associated with lost, stolen, or reissued cards.

Would you like to see more about how WalletFi can help your institution and account holders succeed? Contact us for a short demo!

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