In the intricate world of financial operations, interchange revenue stands as a critical yet often misunderstood component. How financial institutions allocate interchange revenue is a sophisticated mechanism. Interchange revenue is a significant stream of income derived from card-based transactions. Understanding this allocation process is crucial for comprehending the economic interplay between banks, merchants, and consumers.
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Data for today’s episode is provided by Javelin Strategy & Research’s Report: Revenue Dynamics of Debit Cards Since Dodd-Frank
Top 5 Components of Interchange Fees
- 44% – issuer rewards
- 35% – issuer other costs and profit margin
- 9% – issuer processing
- 4% – network processing
- 4% – network servicing
Source: Federal Reserve Bank of Kansas City
About Report
Amid the ever-shifting payments landscape, debit also stands to be transformed by changing regulations and shifting consumer habits. New routing regulations could have an impact on cost and revenue, given the flourishing world of e-commerce and mobile payments. Proposed federal legislation on credit cards could blunt popular rewards programs and shift usage toward debit cards.
This Javelin Strategy & Research report looks at the terrain of debit interchange—what it is, how costs rise and fall, how it is used by issuers—and considers the various factors that could affect it as financial institutions look to boost their interchange revenue and merchants try to control their own costs.