Small Issuers Predicting 73% Cut In Interchange From Durbin Rule

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HOUSTON-Small debit card issuers, including credit unions, are projecting they will see a 73% decrease in debit interchange revenue once the Durbin Amendment on interchange fees goes into effect, according to the 2011 Debit Issuer Study commissioned by PULSE.

The study notes that although institutions with less than $10 billion in assets (which includes all but three credit unions) are exempt from the Durbin rule, issuers are still critical of the proposed interchange cap and do not believe the exemption will be effective.

"The study results support broad industry consensus that the proposed interchange cap will likely affect even exempt issuers," said PULSE SVP Steve Sievert in a statement. "However, the impact small issuers say they are expecting is greater than many anticipated."

Respondents in the study indicated that they believe that over time, interchange income will continue to decrease as the result of marketplace pressures, even under a proposed two-tier structure.

The Study's Findings:
• Proposed network exclusivity provisions are unnecessary given the interchange cap.
• Nearly every issuer in the study indicated a preference for an alternative that would require two unaffiliated networks on each debit card, given that many are already compliant with that requirement.
• An alternative requiring two network choices for each method of authorization--such as two for PIN and two for signature-would create significant operational challenges without providing value to consumers.
• Issuers expect the interchange proposal to significantly impact demand deposit accounts.
• 54% of regulated institutions and 27% of exempt institutions said they are evaluating additional fees or reducing benefits. Exempt issuers are considering reducing rates on high-yield checking accounts, eliminating ATM fee rebates and charging account holders for the service of having a checking account. Many said they are also assessing their debit rewards program.

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