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7 Ways
to increase
Debit Card
Profitability
Presenter:
Mike Holt
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HELPING GOOD BANKS GET BETTER
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Seven Ways to Increase Debit Card Profitability
1. Interchange Network Arrangement
4. Marketing and Rewards
Optimize your interchange network arrangement
components – SIG Brand, PIN POS and ATM – to
set the foundation of earning
So, the interchange foundation is set and our
performance metrics are established. How do we
improve our performance?
2. EFT System
5. ATM...
This could be listed as “1.a” with your network
arrangement, as it is nearly as important since it is
the card portfolio’s foundation of cost
Your ATM network is a loser, but a permanent
fixture and necessary customer service. Let’s
ensure that it will earn.
3. Portfolio Performance
6. Understanding Fraud
Now that you’ve ensured the strongest
foundation for profitable interchange, the next
step is establishing a system of measurement
Please don’t brag to me about having completed
your EMV project, unless you really enjoy doubleedged debates with no identifiable resolution.
7. Profit and Performance Tracking
How will we be able to show our employees, boss
or board members how much we’re improving the
bank if we aren’t tracking it.
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Current Trends: Transaction Growth Declining
Chart from the 2015 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and
Merchant Fraud Losses Related to Debit Card Transactions report released by the Board of
Governors of the Federal Reserve System
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Current Trends: SIG to PIN Shift
Chart from the 2015 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant
Fraud Losses Related to Debit Card Transactions report released by the Board of Governors of the
Federal Reserve System
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Current Trends: Transaction Fraud Changing
Major changes post-EMV
• 2017 liability shift date moved to 2020 for automated
fuel dispensers and ATM.
• CNP (card not present) fraud already on rise while
counterfeit fraud declines.
• Canada’s CNP fraud shift since 2008 – nearly 90%
CNP as of Q3 2016.
• Text alert compliance dates for both Visa and
MasterCard have come and gone
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1. Interchange Network Arrangement
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Interchange Network Components
SIG Network / Card Brand
PIN POS and ATM
Impacts all transaction types
Brand unaffiliated
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Optimize SIG Network Relationship
Brand Agreement
Enhance profitability by 25%+
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Principal
Membership
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Understand the Components
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SIG Income (as basis points of sales volume):
Gross SIG interchange income
- SIG expenses [processing + pass thrus]
Net SIG interchange income
(Target: 100-115 bps)
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Fed Study - Average Debit Card Interchange Fee by Payment Card Network
updated Aug 2016
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Optimize PIN POS and ATM Arrangement
Only ONE
Unaffiliated
Network
Optimal PIN POS
NBR = $0.18 - $0.24
Evaluate and
Negotiate
Not including PAVD
Various types of
incentives
Understand Profit
On top 8 merchant
categories
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Fed Study - Average Debit Card Interchange Fee by Payment Card Network
updated Aug 2016
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2. EFT System
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EFT System
SIG transactions
PIN transactions – POS
PIN transactions – ATM
• SIG auths
• SIG posts
• EMV transactions
• PIN auths
• PIN posts
• EMV transactions
• ATM – terminal and foreign
• ATM driving and network connectivity
• Software updates and one-time fees
Fraud
Pass-thru & Gateways
Reporting, misc.
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• Network gateways
• Brand, PIN network pass throughs
• Membership fees, etc.
• EFT reporting
• Card file and BIN fees
• Other misc.
Fraud monitoring, system
Disputes and hot card
Text alerts
EMV misc.
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EFT System
Components and Ancillary
Fraud extras, reporting extras, etc.
• Costs should be < $15 per active card;
<$10 per open DDA
• PRI high-performers ≤ $10 per active
card and $6 per open DDA
• Does not include brand pass-thru,
card production, or text alerts
• Does not include agreement
incentives
Cost is most important factor.
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•
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No major differentiators
Falcon-based fraud systems
Qualitative factors
System integration points
All components of
the EFT Network
evaluation and
negotiation should
be handled
separately, but
simultaneously.
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3. Portfolio Performance
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Portfolio Performance Metrics to Know and Understand
Industry
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PAU – Penetration, Activation, Utilization
SIG:PIN Ratio
Average ticket
Annual spend / active card
Annual interchange revenue / active card
Fraud bps of sales volume
Profit Resources
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EFT system cost / active card
Annual interchange / open DDA
Annual total card profit / active card
Continuing Strength of Debit
Consumer Debit KPIs Remain Strong
Consumer debit Key Performance Indicators
2014 vs. 2015
76% 77%
68% 66%
21.2 22.1
62% 63%
Penetration
Active Rate1
Txns per active
card per month
Dual-message
% of Txns2
Measure debit card prevalence and frequency of use;
transaction volume is main revenue driver for regulated issuers
2014
$37
$37
Average
Ticket Size3
Measure spend and transaction types,
important metrics for exempt issuers
2015
1. Percentage of cards that performed any transaction in the last 30 days
3. Blended average of single-message and dual-message transactions
19Payment Network
Slide from the 2016 Debit Issuer Study – Seeds of Change in
Debit
shared
by the PULSE
© 2016
PULSE
| Confidential
& Proprietary
| Do Not Copy or Distribute
$9,287 $9,739
Annual spend
per active card
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Improving Portfolio Performance
Business BIN Debit Cards
• Earn 4-5x interchange
• SIG POS GBR should be $1.80-$2.20
• Largest area of potential
• PAU and SIG:PIN ratio
HSA Cards
• Earn 2-3x interchange due to larger
avg. ticket
• Do not offer checks at account
opening, only debit card
HELOC Cards
• Do not have to set up as credit card
• Tie debit card to “dummy” sweep
account attached to the line
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4. Marketing and Rewards
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Chart and info from the SHAZAM Debit Rewards Case Study
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Marketing and Rewards
REWARDS PROGRAMS ARE STILL BEST PRACTICE
Third party vs. bank-driven
Permanent, temporary, new account
Push to drive SIG POS usage
Redemption is key
Do not follow “big bank” lead in debit card rewards
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Marketing and Rewards
In-branch signage
Mailers / Email
Website
Scripting
Your first line of defense
(or offense)! Customers
should be able to
passively obtain and
retain the message.
Get the word out through
mailers and statement
stuffers, as well as email
campaigns or even
through eStatements
Ensure that your site
traffic can get the Bank’s
message of card offerings
and/or rewards available
for POS usage.
The most important step.
Your branch staff should
be familiar with product,
internal goals and
offering details.
Effective, low-cost methods of increasing performance / Process refinement - account opening / Retail efforts - 2 x 2 x 2 calls
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5. ATM
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ATM… and miscellaneous income
Your ATM Network is
a loser
Profit Factors
How to Maximize or
Ensure Return
EMV Liability Shift
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6. Understanding Fraud
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Understanding Fraud
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Gross Fraud and Net (losses recovery)
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EMV
• SIG POS impact
• Fraud impact?
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The next “liability shift”
• AFD
• ATM
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Warranty-type programs
• Amortize, budget losses
• What’s the business case?
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Acceptance
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Understanding Fraud
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7. Profit and Performance Tracking
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Profit and Performance Tracking
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Summary
• Clear and simple summarization to direct executive decisions
• Track monthly and annual
Profitability
• Per unit - by Active card, open card, open DDA
• Report by BIN
Performance
• Tracked and summarized in same source
Data
• EFT system reports
• Card/SIG Brand system
• PIN Payments dashboards, metrics reports
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Session Key Takeaways
Brand Agreement
EFT costs s/b
< $15 per active card
< $10 per open DDA
PIN POS NBR s/b
$0.18 - $0.24
Separate card types
Bank-driven rewards
Simple, but
comprehensive
reporting
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Questions / Comments
Mike Holt
ProfitResources.com
[email protected]