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Impact of the Durbin Amendment less harmful to small banks then initially feared
Jan 18, 2013 (Datamonitor via COMTEX) --
Recent research from the Federal Reserve Bank of Kansas City claims that the introduction of debit interchange fee limits has had a minimal impact on smaller US banks. Instead, it appears that the fees have led to a greater level of competition and innovation in the debit card space.
When the Durbin Amendment to the Dodd-Frank legislation was first announced, much of the political lobbying against the bill focused on what was perceived to be the negative impact the legislation might have on "mom and pop" financial institutions. As a result of these concerns, the bill was further amended to exclude smaller financial institutions with assets of less than $10bn.
Despite this move it was feared that the payment networks would not accept a two tier interchange model with one rate for smaller card issuers and another for larger providers. Perhaps surprisingly, this two tier model has in fact now developed, with small and large players each subject to their own interchange regimes.
While smaller issuers have seen little impact as a result of the legislation the same cannot be said for larger providers, with average interchange fees declining by up to 52%. This has resulted in a scaling back of rewards and incentive offers alongside the sometimes controversial introduction of new fees and services. By contrast, smaller exempt issuers are still well-placed to offer these sorts of programs, and indications suggest they are now on the rise.
It is becoming more and more apparent that rules that were intended to increase competition between US payment networks are having a serious knock-on effect on card issuers. Far from decimating the industry, they appear to be leading to an increased level of competition among smaller players, and it remains likely that larger institutions will have no choice but to react and innovate in response to these challenges in the near future.
For more information about this topic please contact Gilles Ubaghs at gubaghs@datamonitor.com.
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