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