The Durbin Amendment is already causing a
shift in strategy among US banks with an increasing emphasis on
prepaid cards expected and JPMorgan Chase announcing a steer away
from debit.
The regulations form part of an overall
financial reform bill, which became law in July, designed to gift
the Federal Reserve the right to limit interchange fees on debit
card transactions – traditionally viewed as a stable and reliable
source of revenue for banks.
Go deeper with GlobalData
A report from card comparison website
CardHub.com estimates the impact of the Durbin Amendment to be
significant. If the Federal Reserve decides to cut interchange fees
by half, US debit card issuers could stand to lose $9.1bn, or
$18.35 per debit card, in revenue.
Bank of America (BofA) anticipated this loss
back in August, estimating that its revenues could decrease by
$1.8bn to $2.3bn as a direct result of the regulations beginning in
the third quarter of 2011 – nearly an 80% drop (See CI 447-448).
Chief executive of CardHub.com, Odysseas
Papadimitriou, claims prepaid may become the banks’ saving grace as
it escapes the new rules. He expects banks will step up their
prepaid products in their attempt to claw back the lost interchange
revenue.
One of the more vocal opponents of the
financial reform bill, JPMorgan Chase, announced it will eliminate
debit card usage as a way for new customers to avoid paying its
monthly checking account fee.
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By GlobalDataSpeaking at an investor presentation on 4
November, Chase retail financial services CEO, Charlie Scharf,
said:
“It will likely have negative consequences for
consumers and set a bad precedent for business. We will be
appropriately paid for the services we provide.”
Both BofA and Citigroup have introduced
monthly fees for checking accounts, $8.95 and $8 respectively.
Customers can avoid these fees by signing up for paperless
statements and by using the account at least five times in a
month.
Related link: Industry viewpoint: Durbin amendment could
cause debit profits to evaporate
