A recent report by the Federal Reserve Bank of Kansas City examines the current state of the debit card market. The report specifically looks at how that market was shaped by the Durbin Amendment.
The interventions by Congress and the Justice Department were intended to advance consumer welfare and promote competition within the payment card industry. However, statistics show this goal has not been achieved.
On one hand, says the report, merchants have benefited from new rules that cap certain fees. Card issuers, on the other hand, have lost billions of dollars in debit interchange revenues, resulting in the reduction in rewards programs and higher fees as financial institutions try to offset lost revenue. Thus, as the report points out, consumers largely have not been well served.
The report shows that after the cap took effect, the average interchange fee on signature debit for regulated issuers fell 24 cents, to 33 cents per transaction. In comparison, the average PIN-debit fee, fell just 7 cents, to 26 cents. Overall, average debit fees dropped from 48 cents to 30 cents.
According to the study, savings were minimal for merchants who chose bundled pricing from their acquirers. This is where acquirers wrap interchange, network fees, and processing fees into a bundled, overall percentage rate.
While this type of pricing (mostly used by smaller merchants) does make budgeting easier, it also makes it more difficult to determine changes in interchange.
The study found that small-ticket merchants such as fast-food restaurants have likely seen their interchange costs increase. This is due to the fact that interchange on these small transactions started out below the Durbin cap, prior to the cap taking effect.
Overall, the study provides a detailed review of how the new rules have affected card networks and FIs, and how they have begun to respond.
Specifically, the report shows that fee structures have adjusted, incentives within the industry have shifted, and the market shares of the top card networks have changed.
Early signs indicate that some of the legislation achieved a portion of its intended purpose, fostering increased competition in some areas of the industry.
However, whether consumers will enjoy the benefits in the long run will depend, in part, on the results of new revenue-generating strategies adopted by key players in the industry, and of course, whether merchants will come through on their promises to pass the savings along to customers.
