Overdraft Fees are Out, Interchange Fees are In
By Kelly Payne, Chief Marketing Officer at MOCA
(Reprinted with permission from The Credit Union Times. Original article published on March 21, 2022 and can be viewed here.)
Some of the biggest players in financial services are eliminating overdraft fees. Bank of America and
Wells Fargo are just a few of the big names either reducing or eliminating overdraft fees, and many
credit unions are also scrapping these fees.
While overdraft fees have been a nuisance to consumers, they are not the only ones pushing for this
change. Regulators are becoming increasingly suspicious of overdraft fees, too. With this kind of
pressure building, more and more financial institutions are likely to follow suit and say goodbye to
Without this revenue source, where does this leave financial institutions? A study from the Center for
Responsible Lending found that, for institutions with assets of $1 billion or more, overdraft or
insufficient funds fees are about 5 percent of their non-interest income. When overdraft fees disappear,
how can a credit union replace that revenue? For many credit unions, the answer lies in their card
The Current State of Cards
Credit and debit cards are another source of non-interest income for credit unions because of the
interchange fees they bring in. Most institutions get their interchange check every month and take it for
granted. It’s easy money. If it’s not broken, why fix it?
The fact of the matter is credit unions have a huge opportunity to grow their interchange revenue by
making some adjustments to their card programs and this growth can help soften the blow of losing out
on overdraft fees. Regardless of their overdraft fee strategy, however, this is an important opportunity
for credit unions to become more successful and help their bottom line, while also meeting the needs of
One answer to growing interchange revenue lies in virtual cards. Virtual cards can help boost
interchange revenues and therefore boost non-interest income in many ways, the first of which being
the method by which they are issued. Virtual cards are issued instantly and often automatically
activated, so cardholders can begin spending right away. Members don’t have to wait for a card to come
in the mail, then call a number to activate it.
Activation issues are a major vulnerability with physical cards today. If the card doesn’t get activated –
and up to a third don’t – it doesn’t get used. An inactive card sitting in a drawer somewhere is not
earning interchange for the credit union.
Virtual cards also come with enhanced security that can help cardholders feel confident using their cards
more often. Features like single-use card numbers promote safer online shopping. The ability for a
member to create a unique virtual card – with a unique card number – for each recurring online
payment or card on file purchase they make can also limit exposure if one card is compromised. Other
card features, such as the ability to turn cards off on demand gives cardholders peace of mind that they
can easily protect their cards from fraudulent activity. With that peace of mind, cardholders are
empowered to use their cards more often and in more places.
Virtual cards also bring the added benefit of more opportunities for marketing. Credit unions can add
loyalty programs to their virtual cards to help boost engagement. And since any virtual card will need a
platform in which to manage it, there are additional opportunities to share marketing messages with
cardholders directly through the platform.
Virtual cards are not all about the credit union, though. Members also stand to benefit from a more
modern card program. The convenience and security that virtual cards offer is critical for creating a
better experience for members and demonstrating the value your credit union can provide.
All the advantages of virtual cards work together to boost card usage and consequently boost
interchange revenues for the credit union that offers them. Virtual cards also have the added benefit of
bringing a more modern and convenient experience for cardholders. Whether your credit union is
looking to replace overdraft fees, or just looking for a new way to grow interchange, virtual cards are a
great place to start.