Three sure-shot ways Data Analytics can Increase Interchange Income

interchange income

Interchange income is an important component of financial institutions’ non-interest income. But in recent years, retailers’ supporting regulations and regulatory changes such as the Durbin amendment have substantially reduced what financial institutions earn on debit card transactions.  Today, the average interchange income a credit union earns from a debit card transaction range between 0.30% to 0.50%, compared to more than 1.6% on a credit card transaction.

This leaves many credit unions looking for additional ways to revive lagging interchange income. One logical and effective course of action is to increase members’ credit card usage by either issuing new cards, or encouraging current debit card users to migrate to credit.

CU Rise Analytics has helped credit unions with numerous interchange income strategies that produce consistent results. By analyzing member data, it’s possible to precisely-target the members most likely to respond with highly effective offers. Here are three examples of data analysis we use.

ACH Data

ACH data can be examined using text mining techniques that look into transaction descriptions. This enables the credit union to identify the segment of members that has credit cards elsewhere, and pay the balance through their credit union checking accounts.

For a Pennsylvania-based credit union, CU Rise’s analysis identified 7,716 members that were making credit card bill payments. As shown below, it was determined that 6,422 of these members were making credit card payments to other financial institutions, a majority at a much higher rate than what was offered by the credit union. The credit union was able to target this group with attractive introductory offers on its own credit card products for spending and balance transfers and increase its response rate greatly.

ACH data

High POS Transactions

Point-of-Sale (POS) data is rich with information about spending habits and patterns. Analyzing POS behavior reveals the most relevant avenues to incentivize desired behaviors. For example, members that frequent supermarkets will be motivated by cash-back offers on grocery spending. This feeds the natural human tendency to want to be rewarded for things you are already doing.

CU Rise helps credit unions identify member segments with significant POS spending across various shopping categories, and design relevant and appealing credit card offers.

Inactive Debit Cards

Analyzing a debit card portfolio can highlight the least-engaged members. These members may not be actively using their debit cards for a variety of reasons that vary from insufficient balances, lack of rewards, or a preference for credit. Regardless of why, identifying this segment creates the opportunity to reengage these members through a card offer with an attractive bundle of rewards and features. One key part of this analysis is to carefully separate out the members that are actively using the credit unions credit card, because the last thing one wants to do is cannibalize a higher interchange product.

How is your credit union addressing interchange income? Contact us to learn more about our data-driven strategies.