After reading repeated articles about credit union and trade association opposition to the proposed debit card interchange changes, I have found myself repeatedly coming back to the same question. Why?
Why oppose something so potentially advantageous to the movement? Sure, change is difficult. And there are elements of the regulations which may be burdensome. But might it also be possible that the financial impacts of the proposed changes will provide the smaller financial institutions, including all but three of 7,500 credit unions, with their most compelling competitive advantage in memory?
If the two-tier system is put in place-and with Visa's announcement that it would support such a system, that seems more likely than even a month ago-institutions under $10 billion would generate substantially more debit interchange per transaction than all other issuers. This could fund a whole set of special values that could be provided to members. Debit rewards (which are not viable under the proposed limits for large institutions) and free checking accounts are immediate and compelling advantages the credit unions could retain and expand upon. And others would surely sprout from the creative minds in the movement.
If the current proposal survives and, for some reason, small institutions are swept into the same pricing structure as their larger competitors, then credit unions will be forced to compete on equal terms with the large banks. Much as we do now.
But if the two-tier system is implemented, it is a game changer for an industry always struggling to eke out even modest market share gains. Might we better spend our political capital supporting the measure and ensuring the two-tier solution is mandated and implemented?
The concerns related to enforcement of the two-tier structure are warranted, of course, as are potentially adverse merchant reactions and acceptance decisions. But if the changes contemplated are finalized, we may look back at this as the moment when credit unions received a substantial gift from the regulatory regime through the hobbling of its largest competitors. The big banks certainly have received their unfair share of government support. Maybe it's time credit unions got a bit of their own too.
Timothy Kolk
Owner
TRK Advisors
Peterborough, N.H.
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