EBay's PayPal Tries to Duck Debit-Fee Cap as Fed Decision Looms

by Mercator Advisory Group 0

Speculation is heating up as the February 22nd commentary period draws closer and the Fed begins their final deliberations around debit interchange rules. One of the big questions on the table is what the definition of a payment network will end up being in the EFTA. For companies like PayPal, the stakes couldn’t be bigger.

“If the Fed says in general that your PayPal account is a regulated account and anything that moves through it can only be charged an interchange fee of 7 to 12 cents, then that certainly has a serious impact on their business model,” said Hewitt, whose 30-year career in payments included working for SunTrust Banks Inc. and a predecessor of First Data Corp. “It’s a tremendous blow.”

While PayPal confidently declares it is not a network, one could argue that they do play the role of providing “…proprietary services, infrastructure, and software for the authorization, settlement, and clearing of debit transactions.” , as stated in the draft rules issued by the Federal Reserve Bank on December 16, 2010. Since the Fed has signaled that perhaps the only rules to be issued on April 21, 2011 will be those relative to debit interchange fees, we may have a bit longer to wait before they are ready to grapple with this thorny issue.

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