Despite their exemption from the Federal Reserve Board’s proposed cap on debit card fees, small banks and credit unions are hesitant to spend big money on payments technology until more details are available, according to vendor Jack Henry & Associates Inc.
Financial institutions under $10 billion, which analysts say often rely more on the fees than do smaller banks, seemed to have won a reprieve when an exemption for them was added to an amendment to the Dodd-Frank Act passed last summer that instructed the Fed to cap debit fees. The Fed in December proposed capping the fees that merchants pay banks for processing debit card transactions at 12 cents per transaction (
Many questions remain about the ability of smaller banks and credit unions to compete in the reshaped debit card market. For those institutions to benefit, the major card networks, which set interchange rates, would have to support separate fee structures for banks under and over $10 billion in assets.
“It’s very much an unanswered question,” Jack Prim, the Monett, Mo.-based company’s chief executive, said during a Feb. 2 earnings conference. “There’s more talk … about trying to go back to Washington and get that provision changed in some manner, but again how fast can you get anything done in Washington?”
Visa Inc. last month announced it plans to support a two-tiered structure (
“It’s very much on their minds,” Prim said. “I think you’ve got a lot of institutions who are having to rethink pricing of their services–you know, ‘Do we start charging for our checking accounts, and is there any opportunity to pick up business from the large banks?” that already have started adding new customer fees.
In general, banks are more comfortable investing in technology as the economy improves and more institutions get a handle on their credit problems, Prim said.
Jack Henry’s fiscal second-quarter results reflected the improvements (
John Kraft, an analyst who follows bank technology vendors for D.A. Davidson & Co., said he expects results of Jack Henry competitors Fiserv Inc. and Fidelity National Information Services Inc. will show gradual rebounds in bank investments as well.
“I don’t think this is a dam that’s breaking; I think this is a dam that’s finally got a leak,” Kraft said.
Jack Henry said remote deposit capture transactions were up 12.7%, online bill-pay transactions were up 13%, and ATM and debit transactions were up 18.1%.
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