The Durbin Amendment, part of the 2010 Dodd-Frank law, lowers debit card interchange fees (or swipe fees) for merchants. These fees are paid to the acquirer, which is the merchant’s financial institution (FI). A small fraction of that money also goes to the issuer – the cardholder’s FI. In turn, merchants are expected to pass their interchange savings, in the form of reduced prices, to consumers. Simple, right?
Wrong.
According to the Credit Union National Association, “retailers have kept most of the revenue – an estimated $32 billion from price controls implemented by debit card restrictions – a direct hit on consumer pocketbooks.”
FIs, especially smaller ones, are seeing a direct hit from Durbin as well. Some FIs have implemented various strategies and fee structures to account for lost revenue. A few examples include:
- Doing away with debit card rewards programs
- Charging consumers fees to open a checking account
- Charging annual fees for debit cards and/or charging a monthly flat fee for a certain number of transactions
These approaches are all a result of many FIs seeing lower profits from debit card use, but they may not be the best approach for everyone. Here are a couple things FIs can do to potentially increase their interchange revenue:
- Encourage debit card usage. The more swipes cardholders make with your FI’s debit card, the more interchange revenue you generate. You may want to consider offering incentives to promote transactions. In fact, some FIs are generating just as much, or even more, interchange than they were pre-Durbin – simply because their cardholders are swiping more.
- Evaluate your network. It’s important to evaluate your FI’s network (including card brand, debit processor, etc.) to ensure you’re receiving the highest interchange percentage possible.
