Freed From Fees | By Kurt Silvers
For decades, retailers and businesses have had two main options – Visa and MasterCard – for routing signature debit transactions. While the U.S. is transitioning to a chip and signature standard, it remains the last major market with sizable remnants of the standalone signature system.
In fact, standalone signature debit transactions processed by these two networks resulted in significant fees in 2015, with the cost for financial institutions potentially ranging from thousands to millions, depending on the size of the institution. These numbers are particularly significant for community banks, which often don’t enjoy the more spacious margins of national brands – these numbers have the ability to seriously cramp the bottom line.
So what can community banks do to help minimize the fees from their network partners and keep their revenue streams flowing? Here are some suggestions to keep in mind.
Seek Alternative Network Options
It’s old news that the 2010 Durbin Amendment enabled merchants to take control of routing decisions, taking that power from issuers. Now, there’s an additional option for routing signature debit transactions: the STAR Network.
Ultimately, the competitive offering allows merchants to have another option for routing signature debit transactions at all of their U.S. retailer locations. This can help financial institutions lower their quarterly network assessment. Sounds great, but how does a financial institution convince retailers to consider another option? Well, STAR has a solution to that conundrum, too.
Find a Network Partner Offering a True Enterprise Solution
STAR Network works with both issuers and merchants and seeks to negotiate the best rates for all participants. Issuers can be confident their interchange is protected, while merchants see competitive rates on their total cost of a transaction. This creates a win-win situation for financial institutions looking to navigate away from the higher fees usually associated with other routing options, while enabling merchants to control costs on their end. And since STAR is constantly expanding its merchant base, financial institutions can benefit from a continually expanding network as well.
Make Your Second Network Work For your Bottom Line
In addition to impacting routing decisions, the Durbin amendment also requires issuers to add a second network brand on all debit cards. You may have found yourself simply adding a small regional network, perhaps owned by your core, but you have not seen a material difference in the amount of your Visa or MasterCard invoices. It’s time to take a closer look at this.
According to statistics from the Federal Reserve Bank of Kansas, signature debit transactions accounted for over 60 percent of total debit transactions. Today, all of them are automatically directed to your global brand. STAR provides a third alternative and can help reduce the quarterly fees you pay.
In short, the regulatory environment makes it very difficult to manage shrinking margins. It’s time to get creative by exploring new options that offer both innovation and a path to expense reduction. It’s time to partner with a grand collaborator; a partner to both merchants and issuers because everyone wins with the perfect balance. It’s time to explore the STAR Network. ■
Kurt Silvers represents First Data’s STAR Network and works exclusively with community financial institutions throughout the country to grow net income, expand market share and build franchise value. He has spent nearly 20 years in the financial services industry as a trusted solutions partner.