The $30 Billion Wake-Up Call: Card Issuers’ Path Beyond Interchange Fees

Card Issuers’ Path Beyond Interchange Fees

By Andy Newman, VP of Business Development, Wildfire Systems

The recent settlement between Visa, Mastercard and U.S. merchants over excessive interchange or “swipe” fees is a reality check for the card networks. It is estimated that the networks and the card issuers and banks will concede $30 billion in interchange revenue over five years. While not insurmountable, the networks would do well to diversify their revenue models to complement interchange income.

There are some straightforward paths for the networks and issuers to follow – paths that align with the interests of consumers and merchants and the networks alike. By leveraging their powerful brands and massive customer bases, the networks can generate substantial new revenue streams through value-added services such as advanced loyalty programs, marketing platforms, and enhanced shopping tools.

Evolved loyalty features as a revenue driver

The old paradigm of loyalty programs funded by interchange fees is now threatened by regulatory and other constraints. However, companies, including banks and card issuers reliant on interchange income, can evolve their programs to “Loyalty 2.0” features. Defined in 2023 by BCG, Loyalty 2.0 consists of tactics that derive funding beyond interchange fees. Under this model, financial services companies can integrate deals from online retailers, travel companies, and other merchants directly into their customer experiences. The FI then receives commissions from the merchants on sales referred by the company’s end-user customers.

This creates a true win-win-win scenario: consumers get access to more valuable rewards and offers and merchants acquire new customers and see incremental revenue. As a result, the FI can earn a lucrative new commission stream that helps offset stagnant interchange income.

Real-world examples of value-added services like those described by Loyalty 2.0 are already emerging, such as:

  • Chase Travel where users see special travel deals in a Chase-branded travel portal and Chase earns commissions whenever travel is booked through the portal.
  • Citi Shop and RBC’s ShopPlus program, both Wildfire partners, offer bank-branded shopping rewards browser extensions that drive commissions for Citi and RBC, while giving users extra cashback rewards at eligible merchants. 

Becoming marketing platforms

Another major opportunity for banks and card issuers is to build out marketing platforms (e.g. retail media networks) that allow advertisers/merchants to reach the networks’ enormous customer bases more seamlessly.

Just like the shopping rewards play, the value proposition is clear: advertisers gain access to a coveted audience of millions of cardholders from whom they can drive meaningful incremental sales. The banks/card issuers can earn advertising revenue from the merchants, diversifying their business away from just interchange fees.

Retailers such as Nordstrom, Home Depot, Walgreens, and many others are already doing this very thing with their own retail media networks which allow advertisers to granularly target existing customer segments at these brands.

Chase looks to be the first bank taking this step by launching Chase Media Solutions, which provides a way for advertisers to reach over 80 million Chase customers through their retail media network.

For banks and card issuers, the foundation is typically already in place given the login experiences, apps, websites, and multiple consumer touchpoints these businesses operate across credit, debit, and other products. These can be expanded into full-fledged marketing channels featuring targeted offers, promotions, advertising and more.

Enhancing the consumer shopping journey

Finally, banks and issuers can invest more into making the entire shopping experience smoother and more valuable for consumers by layering in tools like coupon finders, price drop tracking, and buyer protections.

While convenient for consumers, these types of services also position the networks to generate fresh revenue by charging merchants to be featured within these new shopping tools and experiences. Retailers can be seamlessly integrated into shopping journey of millions of cardholders as they browse, compare, and purchase goods and services.

Pieces of these shopping utilities do currently exist, but there is a big opportunity for networks and issuers to create a more unified, seamless experience by building them directly into their credit card platforms and apps. This would provide more value for consumers while creating new revenue streams from merchants who want premium placements alongside these features.

The path forward for Visa and Mastercard is clear considering the recent interchange settlement – keep evolving into broader digital shopping and financial services platforms that create value for all parties. By diversifying their revenue streams into areas like loyalty, marketing and enhanced shopping, the networks can offset the interchange cap while aligning with the interests of both consumers and merchants.

About the author

At Wildfire, Andy Newman develops strategic revenue-enhancing partnerships with financial institutions and fintechs, helping them incorporate value-adding customer loyalty features powered by Wildfire’s platform. He has deep experience in partnerships in the payments and loyalty space, having held leadership positions at Cardlytics, Truaxis (acquired by MasterCard), and then at MasterCard itself as Vice President Loyalty Solutions. Andy founded his own retailer consulting firm in 2018, counseling early stage Series A companies on business development and vertical account management, generating fast-track growth and market expansion for his clients through the use of FinTech technology.


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