Durbin Would Have Relatively Small Impact On PayPal, EBay Exec Says

Proposed limits on debit card interchange fees should have a neutral to positive impact on eBay Inc.’s PayPal Inc. operations, at least in the short term, Bob Swan, eBay chief financial officer, told analysts Jan. 19 during a conference call to discuss fourth-quarter earnings.

Long term, however, predictions are a bit murkier, especially if the fees applied to automated clearinghouse transactions rise (see story).  But eBay is confident that even if ACH costs increase, the partnerships it has with companies that process ACH transactions should protect PayPal through 2012, Swan said.

As for changes to debit card transactions, the fees should decrease significantly because “we incur lower processing costs on debit transactions,” Swan explained.

How eBay passes the cost changes on to consumers is still yet to be determined, Swan added.

“We are pretty effective at managing the dynamics of the PayPal wallet to impact any specific changes,” Swan said. “We give consumers a choice by leveraging technology and incentives to migrate them to what would be low-cost options.”

The Federal Reserve Board has proposed limiting debit card interchange at 12 cents per transaction, effective in July. The comment period on the Fed’s proposal ends Feb. 22.

The rate change may slightly impact the fees eBay charges for its MasterCard-branded PayPal debit card, which overall is a “small portion of our revenue,” Swan said.

The changes also most likely will not affect PayPal as a card network because “we do not charge interchange fees, and we use existing card networks to move PayPal payments,” Swan said.

Moreover, payment networks treat PayPal like a merchant, he added.

Payment networks treat PayPal like a merchant because the company is responsible for paying interchange, Beth Robertson, director of payments research at Javelin Strategy and Research in Pleasanton, Calif., tells PaymentsSource. So it makes sense that the proposed limits on debit interchange fees would have a positive effect because if the fees decline, then PayPal will save money, Robertson adds.

Moreover, because PayPal is not a card issuer, its entire business model does not operate on card interchange, so it is not subject to the same guidelines and will not be as affected by the proposed limits, Robertson says.

PayPal, however, may be pressured to lower its transaction fees, especially if the debit card rates decrease and merchants have the option to offer incentives for consumers paying with debit cards, Robertson surmises.