Issuers are making more money as debit card interchange rates increase, but
many in the industry still fail to track the fees accurately, according to a recent
Oliver Wyman Group study.
Average gross signature-debit interchange revenue per transaction has
reached roughly 57 cents, and the average network fee comes to about 6 cents, the
study's data suggest. That yields an average net gain of 51 cents per transaction,
according to the study, which the company released April 29 at the 2008 Pulse
Conference in Las Vegas.
For PIN debit, the average gross revenue per transaction is 24 cents, and the
average switch fee is 2 cents, resulting in an average net gain of roughly 21 cents per
transaction, according to the study.
"As an issuer, do you want 51 cents or 21 cents?" asks Tony Hayes, a partner in the Retail Banking practice of Oliver Wyman, a New York-based management-consulting firm.
With both debit methods, though, interchange is trending upward, says Hayes. Financial institutions are experiencing higher gross exchange rates coupled
with lower network fees or higher rebates and incentives, he says.
Debit-interchange fees generate $78 per card annually, totaling $12.5 billion for
national issuers, the study says.
Despite the funds generated from interchange, "amazingly, 51% [of issuers] do not know their interchange rate on their cards," says Hayes. The large percentage of issuers that do not know their rates is surprising given the importance interchange has for issuers' finances, he says.
In theory, issuers should know their interchange rates well because each network
publishes the information, states the study. The rates, however, may differ by merchant segment, volume tier and authorization mechanism, according to the study.
Also, some issuers track only their blended signature and PIN interchange
rates, notes the study. Houston-based Pulse, the electronic funds transfer network owned by Discover Financial Services LLC, commissioned the study of 62 financial institutions. Oliver Wyman conducted the nationally representative study in February.