A key part of the ruling to pay attention to is Judge Leon’s take on debit card transaction fees. He wrote, “The Board has clearly disregarded Congress’s statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction”.
The ruling, if upheld, will dramatically alter the economics of the checking debit (pay now) and prepaid debit card (pay before) markets. Issuing banks, according to the Aite Group, will effectively have an additional $6B in interchange revenues regulated away. This may lead to a few things:
- The end of free checking and an increase in punitive fees for consumers when they break agreed upon terms & conditions
- The exit of large financial institutions from the prepaid market, with consumer choice suffering
- An increase in banks incenting consumers to use credit cards, as the interchange fee remains unregulated and they currently reap $40B in revenues.
Despite the current sentiment all is not doom and gloom: forward looking banks can use this regulation as a way to reinvigorate their business models and start to introduce innovative payment services that consumers are willing to pay for. Services such as mobile fraud alerting, peer-to-peer based payments and NFC based mobile wallets are some initial ideas which consumers across the world have been willing to pay for.
Check out the legislation from a billers perspective and don’t miss Sean Guilfoyle’s upcoming blog about unaffiliated networks.