In opposing restrictions on interchange fees, the financial services industry often claims that 2011 debit swipe-fee reforms are such a huge threat to revenue that even small banks and credit unions below $10 billion in assets, which are exempt from the Dodd-Frank Act rules, feel the pinch.
Not only is there considerable evidence debunking that theory — and pointing to small banks not feeling an effect on their interchange fees — but lately commentators have raised the prospect of smaller institutions being able to expand retail offerings as a result of the exemption.
After the rules took effect, big banks saw their gargantuan profit margins decline, although their own figures show they still reap a 500% average profit margin on debit transactions, which is unheard of in most U.S. industries.
Those declining margins for big banks mean small banks and credit unions have been able to use their relatively higher margins to entice customers. They have used free checking, rewards, marketing and other inducements. That has driven customers into the arms of the credit unions and small banks.
Jeremy Foster of BancVue, which sells technology and marketing products to credit unions, wrote on CU Insight earlier this month that the hit to "megabank interchange revenue" is a benefit to small credit unions trying to compete with larger rivals for retail customers. Debit reform, he said, "represents an opportunity for credit unions to further differentiate themselves from the megabanks."
"Credit unions have a serious opportunity here to leverage megabank customer dissatisfaction. They're in a position to offer free checking accounts — and even reward accounts — that account holders won't be able to find at the big banks," he wrote.
Last month, the Credit Union Times similarly reported that the Dodd-Frank provision capping fees — that had been authored by Sen. Dick Durbin — was the "trigger" seen by industry experts as allowing some credit unions to gain market share from bigger institutions by offering more debit rewards programs.
"If we can use those rewards and get more members in the door and keep our number of active debit cards going up, that's a positive for us," Jim Minge, president and CEO of Texas Trust Credit Union, was quoted as saying in the article.
It stands to reason that community banks would also be lifted by the exemption as credit unions are reported to be. That would be in sharp contrast to how banks falsely portray the impact of the Durbin amendment: that it is killing their debit card fee business.
The big banks especially like to claim Durbin harms small banks. The reason: Market research shows small financial institutions are far more popular than big ones, and so the public is more likely to care about them than the big banks.
Small banks face many problems these days, not least of which is the prospect of being gobbled up by larger banks. But reform of the outrageous fees banks charge merchants to process debit card purchases is not one of those problems.
The bottom line: Reforming debit card swipe fees has helped small banks and credit unions and will continue to help them.
Lyle Beckwith is senior vice president of government relations at the National Association of Convenience Stores.