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Debit Card Interchange Regulation: Implications for the United States and Beyond

Debit Card Interchange Regulation: Implications for the United States and Beyond

The Federal Reserve has interpreted the Durbin Amendment, and the U.S. payments industry must now scramble to comply.

Boston, July 11, 2011 – A new report from Aite Group predicts 17 ways in which the Durbin amendment will reshape the U.S. payments industry in coming years. The report provides an overview of the amendment’s rules and an assessment of which market players will lose out and which will win as a result of the new order.

The interchange battle between merchants and issuers is coming to a close now that the Durbin Amendment has been interpreted by the Federal Reserve Bank; the payments industry must scramble to comply. The merchant community has largely prevailed, but not to the extent that it had hoped. While the interchange-rate cap was set at a higher level than was originally anticipated, merchants have become the major force in the routing of debit-based transactions. Large banks, issuers, and networks have been stripped of their ability to set debit card interchange fees as they please. Debit and prepaid card issuers are grieving over significant losses in revenue and the added expense of making it all work.

“As a result of the Durbin Amendment, the payments industry will be forever changed, with some—like three-party payment networks and independent prepaid issuers—faring well, and others—like Visa, MasterCard, and large bank debit and prepaid card issuers—receiving a hard hit,” says Madeline K. Aufseeser, senior analyst with Aite Group and author of this report. “Meanwhile, the consumer stands to become the biggest loser. Banks will likely raise the direct cost of banking to make up for lost revenue, while merchants are unlikely to pass any of their cost savings onto consumers.”

This 13-page Impact Note contains one table. Clients of Aite Group's Retail Banking service can download the report .