Company Spotlight

How German Issuers Turn Interchange Losses Into Cardholder Wins


German payment card issuers are facing a major threat. They largely depend on Multilateral Interchange Fees (MIF), fees that are charged by a cardholder’s issuing bank to a merchant acquiring bank for each sales transaction made with a payment card. Currently, proposed interchange fee changes in the EU could severely shake up the nation’s financial ecosystem. In a recent podcast, Tom Stankiewicz, Director of Business Development at TSYS International, revealed the most effective ways issuers can make up for expected revenue loss, all while introducing added value to their cardholders.



According to a new TSYS white paper written by Stankiewicz, while consumers in the U.S. and many parts of Europe rely more heavily on revolving credit for transactions, Germany still has a high penetration of debit (105 million) and charge (22 million) cards. The large reliance on debit and charge cards means that the proposed MIF regulations will make Germany “one of the hardest hit countries within the EU.”

“The proposed regulations would lower the interchange fee from the current 1 percent fee on all domestic payment card transactions to 0.3 percent for credit cards and 0.2 percent for debit transactions,” said Stankiewicz. They expect the changes, he said, to be finalized in Q1 2015, and implemented within two years.

“German banks could see an 80 percent reduction in their interchange fees as a result,” said Stankiewicz, citing PSE Consulting.



“Some issuers might be tempted to react to such reduced fee income by just lowering expenses and cutting investment in new products and innovation,” said Stankiewicz. “But this could seriously limit growth opportunities.”

Others, he noted, might try to make up for lost interchange fee revenue by increasing or doubling annual card fees, which are independent of card usage. But this is an approach that could upset cardholders, keeping them from sticking around after the fees go up, and could reduce the number of new card applicants.

“Issuers that find a new profit model will be best positioned to increase their revenues and market share, and ultimately improve their long-term financial health,” said Stankiewicz.



The UK and German card markets have evolved in many different ways. And while the proposed MIF cap on interchange fees could be a tipping point for Germany’s adoption of payment cards, there is potential for Germany’s card market to grow if it derives new revenue streams. In this way, it can learn from the UK card market, which puts a greater emphasis on innovation.

“Card issuers offering better credit products will not only offset the lost revenue resulting from the regulations, but will also differentiate themselves from the competition, enabling them to acquire new customers and support customer retention,” said Stankiewicz.

Issuers, according to the white paper, should put into place the following initiatives:


1) Expand cardholder base: This includes portfolio management to drive customer acquisition and card activation rates. Portfolio management relies on gathering and understanding the right data and analytics.

2)  Grow consumer transaction speed: Lifting German debit and credit card numbers up to the EU average would increase issuers’ transaction fee revenue and their interchange fee revenue. Issuers should do this by taking a more holistic approach to offer more personalized customer experience, and providing cardholders with greater account control.

3) Identify new revenue lines beyond interchange: Issuers need to prepare new revenue streams that can replace a decline of revenue fees. Two such opportunities include partnership marketing and dynamic credit card marketing.


“As German issuers look to the future, their best defense is to actively pursue an initiative that supports revenue growth and, for example, portfolio management that expands the cardholder base, increases cardholder transaction pace, and identifies new revenue opportunities,” said Stankiewicz.

Tom Stankiewicz

Tom Stankiewicz
Director of Business Development, TSYS International

Listen to the full podcast here.



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