Not All Networks Are Created Equal When It Comes To Interchange Revenue.

Interchange is a major revenue source for financial institutions. The amount of interchange revenue card issuers earn every time their cardholders use their debit cards adds up to a huge amount when factoring in all cardholders within a debit card program. Many factors influence the interchange rate. While some factors are outside of a card issuer’s control, what financial institutions can control are the networks on their debit cards to maximize their revenue. And when you break down all the numbers, it becomes clear all networks are not created equal.

The Net Interchange Equation

Interchange is one thing. Net interchange is the much bigger deal. Here’s what we mean by that.

The gross interchange rate doesn’t accurately reflect what financial institutions earn. In addition to setting interchange rates, each network, SHAZAM included, sets their own network fees card issuers pay on transactions routed by the merchant across that network. This results in different net interchange income for the issuer. For example, some networks provide a better gross interchange rate. However, if the fees are too high, the financial institution earns less net interchange compared to a network with a slightly smaller interchange rate and significantly less switch fees. On the flip side, some networks slash the fees they charge merchants to get them to route the transaction through their network at the expense of what the card issuer earns. Either way, financial institutions earn less.

You must understand both parts of the interchange equation. Net interchange is the true measure for card issuers when it comes to the non-interest income they earn on debit card transactions.

What Sets SHAZAM Apart

SHAZAM brings a higher level of experience in the payments industry and is committed to helping our clients stay competitive in their market. We do this through setting lower network fees, resulting in better net interchange income for our issuers. We care about the net interchange financial institutions earn because we’re member owned. Every financial institution who is a SHAZAM member has an equal voice in the work we do. Each member, no matter the size of the institution, gets a vote. The member-selected board of directors figures out our direction, our focus and how we’ll support our members. This helps set our priorities to ensure that we don’t win a transaction at the expense of our financial institutional partners.

Picking the Right Debit Card Partners

Consumers use their debit cards in dozens of different ways to pay for everyday purchases and monthly expenses. Merchants continue to evaluate their strategies on how to lower their costs to process those transactions. But at the end of the day, it’s the financial institutions who are the card issuers. They determine which networks are used to process transactions.

Financial institutions have more opportunities to boost their bottom line by partnering with networks who deliver the best net interchange. When evaluating a financial institution’s entire card program, fractions of pennies per transaction can add up to a large amount of additional revenue each month for card issuers.

Want to see it for yourself? Let us run the numbers for you. Contact me if you’re interested in knowing more about how SHAZAM optimizes interchange.