Many in the financial services industry are cautiously optimistic that the current political environment will slow the pace of new regulation on the payments industry and actually provide regulatory relief for debit interchange caps. Those who oppose this idea are voicing their opposition. Jennifer Safavian, the executive vice president of government affairs for the Retail Industry Leaders Association, posted an opinion piece on this topic on The Hill:
Repealing debit swipe fee reform will give free reign to big banks and card companies looking to transfer billions of dollars from consumers and retailers back to their bottom lines. Wall Street and their Washington allies are telling Congress these vital reforms are hurting their bottom line yet the banking industry collected $18.41 billion in 2015.
I am not sure of the reference to Wall Street other than it’s a term used by some to describe any perceived greedy entity, but retail banks certainly would benefit if interchange rates were to rise again. Many of the large financial institutions that operate under the interchange caps now have debit card portfolios that operate at breakeven to negative income levels today, given the expenses associated with EMV and other investments needed to fight fraud in every channel. With more expenses and low interchange revenue, further cost cutting for things like low cost checking accounts and consumer card rewards are sure to follow.
If interchange caps were to be removed, I doubt that interchange would float back up to its pre-regulated levels. Many of the largest retailers have negotiated their own rates anyway. A removal of the caps, however, would allow the networks to incent issuers through interchange rewards to make investments in certain technologies and spur payments innovation.
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
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