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Network Routing Rules Taking a Toll on Smaller Banks
January 2, 2013
As the full impact of Regulation II plays out in the market, the impact of networks competing for merchant debit card transactions is having an inverse effect on interchange rates. We noted an estimated decrease of 6.5 percent in our 2012 report,
The Durbin Amendment: No Looking Back
, and current analysis validates the fact that overall, exempt financial institutions (those under $10B in assets) are earning less debit card interchange.
From The Washington Post:
"The provision that could really start to lower interchange revenues for smaller institutions took effect in April, and in the only full quarter since then, the third quarter of 2012, we saw the first-ever decline in interchange revenue for credit unions," Bill Hampel, chief economist for the Credit Union National Association, said in an interview, citing his group's latest quarterly survey. "We are concerned about whether that was a one-time downward shift or the first of several quarters of decline."
These are the market forces at work, unleashed by regulators, that will result in a diminishing pool of feature rich free checking account services. Issuers are being driven to compete on services, including frictionless, multi-channel account usability which is where they might recapture some of their lost revenue either directly from consumers or through alliances with merchants.
to read more from The Washington Post.
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