The year 2020 has caused a significant shift in the way Americans view everyday activities due to COVID-19. Many storefronts have implemented card only policies to slow the spread of the virus. However, the trend of using cards over cash has been tilting more towards cards for the last few years. According to the 2019 Diary of Consumer Payment Choice study conducted by the Federal Reserve, consumers have been using cash on a less frequent basis. In 2018, consumers used cash in 26 percent of transactions, down from 30 percent in 2017 (Exhibit 1). This trend presents an opportunity to consider turning a potential cost to institutions into a profit driver by earning interchange income. Reimagining your core checking product to require a minimum number of transactions or other usage-driven incentives may aid in accomplishing this. The question to answer is which strategy encourages more interchange income? Are consumers more incentivized by a higher dividend rate or rewards points? Aligning strategies with the wants and needs of your consumer base will drive higher interchange income. In a low rate environment (such as the one we are currently experiencing), this can generate income from a portion of the balance sheet that would otherwise be an expense. For institutions greater than $10 billion in assets, the impact of such a focus would be muted due to restrictions from the Dodd-Frank Act. However, most community financial institutionsdo not exceed that threshold.


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