Swipe fee reform effectively allowing small banks & credit unions to “compete more effectively with larger institutions”
WASHINGTON, Dc – The merchant community is pleased to see that the small bank and credit union exemption written into the swipe fee reform law is functioning as Congress intended. Debit card networks have effectively implemented two-tier interchange systems that allow smaller financial institutions to earn higher swipe fee revenues—creating an opportunity for more competition between small and large banks.
As weeks go by, more and more first-hand accounts of credit union and small banks benefitting from swipe fee reforms are being reported, making it clear that the small bank exemption and the two-tier interchange system are working as intended.
• As the Executive Vice President and Chief Operating Officer of one South Carolina small bank said, “We now have the advantage.”
• Randolph Brooks Federal Credit Union in Texas pays its customers 10 cents for every purchase made with their debit card, and has increased that payment to 15 cents per transaction through December 31.
• According to the National Association of Federal Credit Unions, traffic to its credit union locator site has increased more than 200% in the past week as customers have started looking for small banks that are effectively utilizing the new two-tier system.
• Manatee Community Bank in Florida is offering to pay new checking account customers $5 per month instead of charging them.
• In South Carolina, 32 credit unions signed a pledge to keep debit cards free “as long as market conditions allow.”
• Renasant Bank in Mississippi has been running ads with the headline: “Does your bank charge for debit cards? We don’t.”
• In Washington State, BECU spokesman Todd Pietzsch said the credit union was on track to break a record in new memberships on September 30, the day after Bank of America introduced its debit fee.
• The country’s largest credit union, the Navy Federal Credit Union, reported that new account openings following Bank of America’s fee announcement were 23 percent higher than average.
• LA Financial Credit Union has seen a huge spike in applications in recent weeks. The credit union received 175 applications in the two weeks following the Bank of America announcement, compared to 27 in the same two weeks a year ago.
• Card Services for Credit Unions’ vice president of portfolio consulting services Bill Lehman said, “In light of the new debit interchange legislation that will drastically reduce debit interchange income for larger financial institutions, the larger banks are aggressively looking for alternative sources of revenue. A majority of credit unions see this current bank trend as an opportunity to capture market share. And, since most credit unions are exempt from the interchange legislation, they have the opportunity to maintain their free checking accounts and benefit-rich debit card programs.”
• A recent CreditUnions.com article confirms that credit unions now have “the opportunity to earn more revenue on each transaction, allowing them to compete more effectively with larger institutions.” The article continues by explaining that “credit unions certainly seem in the perfect position to keep their competitive advantage.”
From coast to coast, small banks and credit unions are utilizing the exemption and the two-tier interchange system to their advantage—and to the benefit of their customers.
During the height of the swipe fee debate, bank associations tried to scare Members of Congress into voting against swipe fee reforms by floating the threat of massive small bank failure as a result of a malfunctioning small bank exemption. Merchants are pleased to see that such fear mongering did not have real-world repercussions and that the two-tier interchange system is functioning effectively.
“These new offerings from small banks and credit unions are testament to the effectiveness of the small bank exemption and a two-tier interchange system,” said Lyle Beckwith, Senior Vice President of Government Relations at the National Association of Convenience Stores. “After all of the rumors and scare tactics, it’s encouraging to see the law working as intended. Any bank talking head that tries to claim the small bank exemption doesn’t work need look no further than the many examples of small banks using their new competitive advantage to woo new customers.”