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Posted: Dec 14, 2017
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It’s imperative for credit unions to understand interchange – the biggest component of non-interest income.

One of the most misunderstood, and possibly the most misaligned topic in the credit and debit card world is interchange. At a summary, it is a fee paid by a merchant, paid to the issuer, each time a credit or debit cardholder uses a card, in a store or online. The fee covers the cost of processing the credit or debit card; for a credit transaction the fee reimburses the issuer for the interest on carrying the balance during the cardholder’s debt repayment grace period; and the fee is intended to address the cost for zero fraud liability, which reimburses the cardholder in case of fraud. In addition, higher interchange is charged for signature rewards credit cards, to cover the cost of additional cardholder benefits such as cash back or auto rental collision damage waiver. The practice of a merchant paying the issuer interchange was established in 1971, when Bank Americard set 1.95% as the standard rate as compensation for the risk of card-issuing banks. Interchange is also paid to the ATM owner each time a cardholder gets cash out. Seems simple enough, but there’s much more complexity to it.
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Posted: Dec 1, 2017
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Author: Lou Grilli

[Editor's Note: This article was previously published on “Anthem”, the online News & Info site of the Northwest Credit Union Association, and has been modified.]

When members think about services provided by their credit union, they might first think about their share draft account, a debit card, bill pay, loans, and credit cards - basic services offered by almost all financial institutions. But, something new is happening when it comes to these services. No, not new services, but rather something called “banking on the fringes.”

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