The belief that consumers would benefit from lower prices if the Senate debit card interchange amendment is included in the final version of the Restoring American Financial Stability Act might not actually be true, concludes a report from banking research firm Celent LLC.
“Realistically, it is a long shot,” Zilvinas Bareisis, a Celent senior banking analyst, writes in the report.
Lower prices were the intent when the Reserve Bank of Australia in 2008 mandated a 50% cut in interchange from MasterCard Worldwide and Visa Inc. “Not only did the merchants fail to pass on the reduction in full, the Australian issuers had to raise [other] fees to compensate,” he writes.
Consumer savings has been at the center of the interchange debate for years. In April, the National Association of Convenience Stores produced a video showing consumers how much “swipe fees” cost convenience-store operators when consumers buy a bag of chips, $20 in gas or other generic types of purchases. (
Consumers in 2008 paid $48 billion in credit card interchange fees merchants passed along through the prices they set for products and services, the Alexandria, Va.-based association claims.
Not surprisingly, the association disagrees with Celent’s argument and points to its corner of the retail landscape and cash discounts for fuel purchases. “We do pass on the savings because it is an incredibly competitive [environment],” says a spokesperson for the association. “If you drop gas prices by a penny, you will pick up customers.”
Bareisis cites a provision in the Senate bill’s amendment that says retailers could offer discounts to consumers using a competing payment method or card network.
“The expectation is that the retailer will keep the list price and then offer discounts for noncard transactions, perhaps even different ones for cash or check,” he writes. Such discounts are a common practice in countries such as Denmark and the United Kingdom, Bareisis adds.
Though who would benefit from debit-interchange regulation remains unclear, issuers without a strong merchant-acquiring business and a customer base used to using debit cards to make purchases will suffer if the amendment is included and the final bill is signed into law, Bareisis contends. The House version of the bill does not include a debit card-interchange amendment.
“Even if the bill becomes law, it will require the industry’s willing cooperation,” Bareisis argues.
Bareisis suggests some ways issuers can offset revenue losses, including the creation of alternative revenue sources and cost-savings measures.
Banks could influence customer behavior by introducing minimum account balances and establishing service fees, he suggests. Issuers also could charge for existing services such as customer statements. Another alternative revenue source could come from new product offerings such as a mobile wallet.
