Debit card networks could lose $1.7 billion in revenue from fees they charge banks because of the Federal Reserve Board's proposed debit interchange caps, according to an analyst.
Banks are expected to pressure Visa Inc. and MasterCard Inc. to lower their network fees as a result of the caps, which would limit the money banks earn on debit card purchases to 12 cents per transaction, compared with a current average of 44 cents.
Tien-tsin Huang, an analyst with JPMorgan Securities LLC, said in a research note Friday that he expects issuer network fees to go away over time as banks' contracts with the networks come up for renewal. The financial impact on Visa and MasterCard would be $1.2 billion and $400 million of their net revenues, respectively. The impact to the entire debit network industry would be $1.7 billion.
To compensate, the networks are likely to raise the fees they also charge to merchants' banks for processing transactions, Huang wrote. An increase of 3 cents per transaction on those fees, he wrote, "could comfortably offset issuer-side network fee compression."