As required by law, the Federal Reserve surveyed debit card issuers and processors to determine costs related to authorization, clearing and settle (ACS), and fraud for regulated issuers across the United States (those with assets over $10B). Based on this data, the Fed has determined that no changes will be made to existing debit card interchange fee regulation or fraud adjustment. The next survey takes place in two years.
Mercator Advisory Group anticipates issuers that have accepted the inevitable will continue to lobby behind the scenes to modify or eliminate the Durbin Amendment based on its impact to unregulated financial institutions. Retailers will most likely highlight parts of the release, such as:
Issuers that responded to both the 2009 and 2011 data collections typically reported ACS costs per transaction that were lower in 2011 than in 2009. Covered issuers that had average ACS costs below 21 cents in 2011 processed well over 99 percent of all reported covered transactions, the same proportion as in 2009.
The 39-page report, found here, also illuminates how the regulation has shifted network incentives, citing:
Although networks reduced payments and incentives to covered issuers after October 1,2011, covered issuers received a disproportionate share of payments and incentives (compared with exempt issuers) both before and after implementation of the interchange fee standard.
Another interesting note was the dramatic drop in ACS for prepaid card transactions:
The average ACS cost for prepaid transactions was 22 cents in 2009 and 12.2 cents in 2011.
The median fraud loss, as reported, was essentially unchanged from 2009, which will not help EMV advocates make their case; a hoped-for outcome of this survey.
Mercator will be writing more about this as we absorb the complete report, but the continuation of this survey provides a valuable glimpse into the economics of debit cards in the United States, even if, at first glance, it appears to have a net neutral effect on either side of the argument regarding the rules.