Prioritize Debit Optimization

Living in a post-Durbin world requires reducing costs and generating new revenue.


What should credit unions be focusing on in the post-Durbin environment? In many cases – debit optimization.

In the post-Durbin era, even exempt credit unions are challenged to maintain their interchange income. Factors like increased competition from networks and network steering by merchants are compressing interchange revenue, requiring credit unions to seek alternative sources of income from their debit program.

Debit optimization, the process of migrating checks, cash, and ACH payments to debit, can be a beneficial alternative to simply guessing how the debit market will play out.

Debit optimization can help credit unions in two ways. First, it helps generate revenue by increasing transaction spend and volume. Second, it helps reduce operational costs at the institution. Simply put, debit generates revenue for credit unions while they reduce the expense of checks, cash, and ACH.

Assessing this strategy starts with an examination of credit unions expenses from checks, cash, and ACH. According to The Nilson Report, 39% of the nearly $7.7 trillion in personal consumption expenditures (PCE) is made up of cash and check segments. This is typical for all institutions and indicates genuine opportunity for credit unions, especially in bill pay.



When examining the cash and check segments more closely, it is revealed that 50% of check spend is in the bill pay segment and 47% of cash spend is in the retail segment. These are two ideal payment segments for migration to debit. Credit unions are not earning revenue on these transactions, but they are incurring an operational expense.

So just how much do checks, cash, and ACH cost a credit union per transaction? According to the 2011 McKinsey & Company Payments Study, these transactions cost debit issuers 14 cents for checks, 5 cents for ATM cash withdrawals, and 2 cents for ACH transactions.

The bill pay segment also represents a higher net revenue opportunity for institutions due to higher average tickets and lower fraud than is typically associated with this segment. According to Visa’s 4Q11 Debit Business Update, the average ticket for the bill pay segment in 4Q11 was $73.23, with year-over-year segment growth of 12.8%. The bill payment segment also represents an opportunity to turn a one-time payment into a recurring payment, which creates annuity-like revenue for the institution while reducing check processing costs.

Working with Member Access Pacific, Visa developed a Debit Optimization Model that can help credit unions quantify the expense reduction and revenue opportunity by migrating check, cash, and ACH payments to debit. Credit unions can download this model from MAP’s website at no cost.

Even moving a small percentage of these payments to debit represents a significant opportunity as indicated in the example below.


This credit union example (the issuer is exempt to Durbin) assumes the institution is processing a total of 400,000 check, ACH, and ATM transactions per year. By migrating just 25% of these transactions to debit, the expense reduction would equate to $10,100 per year and the revenue opportunity would equate to $66,000 per year (assuming a blended interchange rate of 132 basis points), providing a total annual benefit of $76,100.

Debit optimization can be an effective strategy in the post-Durbin environment to help maximize a debit portfolio’s potential. When planning your next debit marketing campaign, consider a program that targets cash, check, and ACH payments to turn non-revenue-bearing transactions into revenue-bearing ones.

Greg Borchardt is a senior business leader for Visa Consumer Debit Products and Cyndie Martini is President and CEO of Member Access Pacific (MAP).

Note: Case studies, research, and practice recommendations are intended for informational purposes only and should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, consult your legal counsel to determine what laws and regulations may apply to your specific circumstances. The actual costs, savings, and benefits of a card program may vary based upon your specific business needs and program requirements. Please note that Visa makes no representations and warranties as to the information contained herein and you are solely responsible for any use of the information in this article in connection with its card programs.




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