Tag Archives: mclennan

Amendment Puts $11.8B Debit Revenue at Stake

In the US banking industry, $11.8 BN of the current $16.2 BN generated in debit interchange revenue could possibly vanish. Based on the proposed draft rules announced by the Federal Reserve on December 16, debit interchange revenue for regulated card issuers will decline by 73%, from an average of $0.44 per transaction to $0.12 per transaction by July 21. This, according to the latest Oliver Wyman report “The US debit Market and the Durbin Amendment: Worse than the worst case scenario,” indicates the economics of debit card programs will become significantly unprofitable. After having grown between 2000-2009 at an average annual rate of 18% to become the most commonly used non-cash method of payment, debit card transactions totaled 37.9 billion in the US in 2009 alone to account for 35% of total non-cash retail payments. Currently, card issuers generate an average of $87 of revenue per active consumer debit card per year, but starting on July 21st, for banks with at least $10 BN in assets, this figure will drop to $24 per year. This comes after agreements were met in the spring with key conferees on the Wall Street reform bill regarding the Durbin amendment to regulate interchange fees, which passed the Senate 64-33. Modifications to the Durbin interchange amendment regulated interchange fees associated with debit or prepaid cards issued by large banks on behalf of government-administered payment programs; defines “interchange transaction fee” to include debit card fees that are established by a payment card network; and provides that the Fed cannot regulate network fees. It also provides card networks can no longer prevent merchants from offering customers a discount to use one card network vs. another and card networks cannot prevent merchants from offering a discount for one form of payment vs. another (cash vs. check vs. credit vs. debit) (CardFlash Library, 2010/12/22).