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For nearly all banks and credit unions, debit interchange ranks alongside overdraft fees as one of the two leading sources of non-interest income, yet few financial institutions (FIs) have actually analyzed the underlying dynamics of their interchange programs.

Since debit interchange revenue has been on a solid, upward trend for decades – with one notable exception – it is possible that some banks and credit unions have decided to leave well enough alone and simply enjoy the ride. In the meantime, however, soaring consumer volumes have masked some less favorable changes in rates and product mix beneath the surface, and FIs that fail to actively manage their debit portfolios are likely leaving money on the table.

Acquisition continues to be a preferred strategy for financial institutions (FIs) seeking to gain economies of scale while also expanding service offerings and reach. Choosing the correct merger candidate usually centers on factors like strategic fit, market footprint and business integration. There is another less exciting but important factor to consider during these talks: vendor contracts which can cause costly, tactical headaches if not identified early in the process.  However, if the contracts are assessed early enough in the acquisition process, an institution can reap benefits greater than expected through due diligence process.

All banks and credit unions rely on third party vendors for products and services to support the backbone of their operations. These relationships are typically governed by long-term agreements and when those vendor contracts are up for renewal, the common reaction is to sign an extension with the incumbent. Assuming service levels have been acceptable, switching costs – especially for anything connecting with a financial institution’s core system – tend to be so onerous that there’s rarely any appetite for the hassle and resource diversion that accompanies a de-conversion.