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Data for today’s episode is provided by Mercator Advisory Group’s Report: Will The Fed Clarify Regulation II to Enforce Utilization of Two Unaffiliated Networks? Mercator Sees it as Likely
How Would Proposed Regulation II Clarifications Impact Debit Transaction Volume?
- Through the Fed’s data collection process, it estimates that 79.2 B transactions and $3.1 trillion dollars are spent annually on debit cards and prepaid debit cards.
- This includes both dual message and single message activity through the global and the EFT debit networks.
- The transactions that will be impacted by the proposed change to the regulation are those conducted in a CNP environment.
- CNP makes up 22.8% of total debit transactions, or 18.1 billion transactions.
- The average CNP transaction is $61.36, equating to an estimated dollar volume of $1.1 trillion in CNP debit transactions annually.
- With the addition of PINless to all cards, the critical question is, How many of these transactions will be processed through an EFT debit transaction rather than Mastercard and Visa?
On May 7, 2021 the Federal Reserve Board of Governors issued a Notice of Proposed Rulemaking to amend Regulation II which, if enacted, will require all financial institutions to ensure that card-not-present transactions can be successfully routed over at least two unaffiliated payment networks. The implication of this clarification, if enacted, will affect financial institutions, merchants, processors and networks. Community banks and smaller credit unions that currently do not support two networks for e-commerce transactions will see a significant drop in interchange revenue for those e-commerce transactions that are routed through EFT debit networks and not a global network. This announcement also sets the groundwork for future changes to the regulation with far reaching fee implications for the debit card market as a whole.
The proposed change is all about money. What is missing from this announcement is any consideration for cardholders and how they may be impacted by clarifications of the law.