The “3 Ps” to Picking the Right Debit Card Network Partner
Article Contributor: Christine Lopez, Senior Vice President, SHAZAM Payments Network
Consumers are increasingly opting to pay by card over cash. According to the Federal Reserve Payments Study the increase in the number of card payments accounted for more than 84 percent of the growth in the number of noncash payments from 2018 to 2021, while ATM cash withdrawals declined by a little over 10 percent. Leading the growth is debit. Non-prepaid debit cards reached 87.8 billion payments, or approximately 56 percent of all card payments in 2021.
For financial institutions, debit is a critical component of the financial statement, impacting both income and expenses. Choosing the right debit network partner as a second unaffiliated network comes down to the “3 Ps” of profit, protect and people. All of which directly impact a financial institution’s net interchange income for years to come.
Profit Revolves Around Net Interchange
Interchange is one thing. Net interchange is the much bigger deal. As a card issuer, financial institutions earn interchange on each debit transaction cardholders initiate. But financial institutions also pay network fees on each of those transactions.
Each network affiliated with a financial institution’s debit cards has its own set of interchange rates and fees. When a cardholder swipes, inserts or taps their card to buy something, the merchant (and its acquirer processor) chooses which network the transaction will travel over, typically based on lowest merchant cost.
For example:
| $50 Purchase |
Network 1 |
Network 2 |
| Interchange rate |
$0.15 + 1.05% |
$0.15 + 1.00% |
| Gross interchange paid |
$0.675 |
$0.650 |
| Payment network issuer switch fees |
($0.060) |
($0.019) |
| Net interchange income to issuer |
$0.615 |
$0.631 |
Information presented in this table is for illustration purposes only and is not intended to reflect any network’s interchange or fees.
As you can see, Network 1 provides the better interchange rate, but with high network switch fees, financial institutions lose out on this transaction. However, network 2 has a slightly smaller interchange rate, but with significantly less switch fees, the net interchange earned is better with network 2.
Protecting Cardholders’ Transactions
Fraud continues to be a major pain point for financial institutions. According to a 2022 survey, Every $1 lost to fraud costs U.S. financial services firms $4.23, a 16.2% increase since 2020.
SHAZAM protects cardholders’ transactions through our fraud management solution, powered by FICO® Falcon®. This powerful tool uses powerful modeling and 'state of the art' artificial intelligence to detect suspicious activity. Here’s how it works. Each time the card is used for a purchase, the transaction information is added to a sophisticated profile to better detect fraudulent activity in the future.
Additionally, SHAZAM’s Fraud Advisors™ helps financial institutions protect cardholders and reduce fraud losses. This consultation and investigation service provides SHAZAM’s standard fraud offering but adds a structured and proactive solution, personalized for each financial institution.
People Who Make the Network Work
The strength of a payments network is only as strong as the people behind it. SHAZAM client support is available when our clients need us. Our team consists of people with operational banking experience and is 100% located in the U.S. The department handles thousands of calls, emails, and tickets monthly from our clients — financial institutions, merchants, and processors. They answer questions about dispute services, fraud, reports and much more.
Picking the Right Partner
The debit landscape has changed significantly over the past decade and continues to change. This begins with choosing the right debit network partner who can drive profits through net interchange, protect what financial institutions earn with fraud services and has people who serve your needs.
Let us help determine if we’re the right partner for your financial institution. Contact us to help you evaluate your institution’s current debit network relationships and plan your next strategic steps.