Your cardholders, your interchange. Are contactless payments squeezing you out?

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By Terry Dooley, Chief Operating Officer, SHAZAM

As we continue into summer, questions persist about how COVID-19 will affect your business and unfortunately there are no clear answers. In the payments industry, we can see things are starting to return to more normalized business volumes.

That said, COVID-19 is producing some trends that have the potential to impact your bottom line. Now more than ever, non-interest income is critical. We find community banks may be considerably overspending on their debit card program due largely to network expenses. Many of these costs are within the institution’s control and warrant a second look.

Contactless payments — tapping or waving a card or device — are a good example of the payments predicament highlighted by the pandemic. As we all search for ways to feel in control and safer, it’s understandable consumers would try to reduce infection risk when paying at a physical point of sale. The transaction technology is good, it is safe, but no one’s talking about the financial risk to your bank if your debit card holders gravitate mainly to contactless.

As it’s implemented today, this technology potentially limits the choices a merchant has available to route transactions to all bank partner networks. Often, that limitation means higher merchant expenses as the transaction is routed across the payments ecosystem. By the time it gets to you, the transaction can lose some of the economic value that could benefit your bank. This happens pennies at a time, but it adds up. Maximizing your debit card program’s routing choices can save your bank tens of thousands, if not hundreds of thousands of dollars a year depending on the size of your card program.

Set aside the question of costs for a minute and remember: The choice of transaction routing over multiple debit networks is federal law.

Two years ago, the Federal Reserve clarified that a network can’t use network rules, standards, specifications, contractual agreements, technology or otherwise to inhibit the route of a transaction. This leaves no doubt the merchant, in all cases, using all technology, should have the choice to route over every debit network available to them.

For years, SHAZAM has been advocating for the development of industry-wide, independent standards that would govern payments. We applaud the development of technology that opens choices for consumers when they pay. We won’t accept technology that limits choice and raises expenses.

We welcome any organization willing to join us in the fight to maintain the choice and flexibility that have kept the U.S. payments system competitive for community banks for more than 40 years. We encourage leaders in community banking to step up and talk, not just about using the technology, but to ensure it doesn’t filter any more money away from community banks who need it now more than ever.

Bottom line, other networks can support contactless payments, if only the large networks and their operating rules will allow the choice.

There are a lot of uncertainties right now as you reopen your doors and carry on serving your customers, perhaps in new and different ways. The issue of routing choice shouldn’t be one of those. We know what the law is. The only question is, who will join the fight to enforce it?

I welcome your thoughts.

Terry Dooley

SHAZAM pioneered the PIN-debit point-of-sale transaction, still used worldwide today. We’re the nation’s only independent, member-owned debit network, processor and core provider supporting community banks and credit unions. Since we don’t answer to shareholders, we can reinvest profits in technologies our clients need as they serve the next generation of consumers. SHAZAM ensures our clients have the products and services they demand and expect in a cost-effective way. Founded in 1976 and headquartered in Iowa, we’re a leader in payments and financial technology, with a simple mission: Strengthening community financial institutions. Visit us today at

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SHAZAM contact:

Valerie Cibula, Senior Public Relations Specialist