Addressing analysts Jan. 19 during a conference call to discuss fourth quarter earnings, Dan Poston, chief financial officer at Fifth Third Bancorp, noted it is too early to predict how the bank will react to reductions in debit card interchange revenue.
But one thing Fifth Third will not do is provide debit cards for free if it is unable to recoup its costs, Poston said. “We have no intention of offering a loss-leader product that is core to the fundamental nature of deposit and payments offerings,” he said.
The Federal Reserve Board, as mandated by the so-called Durbin amendment to the Dodd-Frank Act, last month proposed two scenarios that would cap the debit card interchange rate at 12 cents per transaction (
Determining the effects of Durbin is not as simple as calculating the proposed interchange caps based on volume because that would not incorporate any mitigation, “which we believe will be substantial, both for us and for the industry,” Poston said. “We expect to substantially mitigate the effect of the new rules, and so we would not expect to ever experience anything like that kind of drop in revenue, even if these kinds of proposals are ultimately adopted.”
Fifth Third in 2010 earned about $204 million in debit card interchange revenue, driven by volume of 433 million transactions, Poston said. But until the Fed releases its final interchange rate rules, he said he could not comment directly on the gross financial impact of the legislation.
“But you can kind of do the math in terms of the range of potential results that that produces,” Poston said. “This is a valuable service to our customers and to merchants, and it costs us a lot more than 12 cents per transaction to make this service available.”
Fifth Third has been studying the interchange issue for months and has come up with various alternatives to address it, Poston noted. “Which of those we ultimately pursue will depend a lot on a number of factors, including the final proposal, the competitors’ actions, and our own internal work and planning over the next five or six months, until it is scheduled to take effect,” he said. “We’re going to be very careful in what we do and how we implement it. And we would ultimately expect to recapture most, if not all, of the value that we have delivered through this channel.”
Other executives similarly have chimed in with their views in Durbin during their institutions’ earnings calls. JPMorgan Chase & Co. CEO Jamie Dimon suggested a 12-cent interchange cap could drive 5% of consumers out of the banking system (see story), http://www.paymentssource.com/news/another-durbin-outcome-could-be-more-unbanked-3004689-1.html while Richard Davis, U.S. Bancorp chairman, president and CEO said his institution will not sit back and wait to see how others respond as it had originally planned (
Driven by seasonally strong consumer spending in the fourth quarter, payment-processing revenue totaled $81 million, up 6.6% from $76 million a year earlier, Fifth Third reported. “We expect first-quarter processing revenue to be up a similar amount,” Poston told analysts.
Consumer credit card outstandings at the end of the quarter totaled $1.9 billion, down 4.5% from $1.99 billion a year earlier. Average card loans outstandings were $1.84 billion, down 7.1% from $1.98 billion.
The banked deployed 2,445 ATMs as of the end of December, up 3.7% from 2,358 a year earlier.
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