PayPal Inc. could lose a substantial amount of transaction revenue if pending caps on debit interchange are applied to the alternative payments company, an analyst with FBR Capital Markets said in a research note Thursday.
If the Federal Reserve drafts final rules in a way that categorizes PayPal as a debit account, the eBay Inc. subsidiary would be subject to the 12-cent fee cap the Fed proposed for debit card transactions in December. Currently debit card issuers earn an average of 44 cents per transaction.
"A $0.12 per transaction cap would be as much as a 96% reduction in revenues for PayPal on a $100 transaction," analyst Edward Mills wrote in the note.
PayPal would have limited options for recouping the fees it charges from merchants in that case but it "could increase the fees charged to the owner of the PayPal account," Mills wrote.
PayPal could also have to comply with new transaction routing rules if it falls under the definition of being a payment network. Mills noted that the Fed mentioned the potential that PayPal could fall within the definition of a network in its draft rule.
Final rules for the cap are set to take effect July 21, which is also the deadline mandated by the Durbin amendment to the Dodd-Frank Act for final rules on the network provision.
