WASHINGTON – The Federal Reserve Board’s proposed debit card interchange rules would slash issuers’ revenue by $11.8 billion, cutting large issuers’ debit card revenue by 73% per transaction on average and making debit cards “significantly unprofitable,” according to a new report.
But the report also may have good news for credit unions, as it suggests the proposed rules may leave issuers with assets of less than $10 billion unaffected. The nation’s largest banks, however, which depend more heavily on the $16.2 billion in revenue debit cards generate annually, would have to change their product offerings and prices to make up for the lost income, according to Tony Hayes, the Oliver Wyman Group partner who wrote the Dec. 22 report, according to American Banker, an affiliate of Credit Union Journal.
The Fed’s proposed rules, included in the Dodd-Frank Act, also would prohibit payments networks and issuers from limiting the number of transaction-routing options on a debit card to a single payment brand’s network or to two or more affiliated networks.
“The proposed regulation will have massive and far-reaching consequences for retail banks,” Hayes wrote in the report. “The new economics associated with operating a debit card portfolio are likely to lead to fewer rewards programs, more consumer fees and a different set of banking choices.”
Banks earn approximately 44 cents per debit card transaction, for an average of $87 in annual revenue per active card, Wyman’s data shows. Under the Fed’s rules, those numbers would drop to about 12 cents per transaction and $24 in annual revenue per card.
For a typical $40 PIN-debit Interlink purchase, the interchange fee for retail merchants ranges from 30 cents to 45 cents, depending on volume, while the interchange on a $40 Visa check card signature-debit transaction ranges from 37.8 cents to 56.8 cents, according to calculations using Visa Inc.’s published rates. Visa controls about 80% of the signature-debit market, the more profitable of the two types of debit card transactions.
