-
Amex's Bluebird card account, exempt from Durbin and assertedly from bank regulation, is likely to generate high interchange. Consumers, banks and Amex won't pay for these checking accounts. Merchants (excepting Walmart) will.
October 22 -
If your bank is gung-ho to issue prepaid cards, think again. Focus on how to retain checking account customers, rather than emulating Green Dot and Chase and issuing fee-based "prepaid cards" as a new (already outdated) product.
October 16
The next thing we know, Senator Dick Durbin (D-Ill.) will have his own branded prepaid card.
After all, he did help spark a prepaid card revolution in the United States, which has led to the advent of the Lil Wayne Prepaid Card, the Approved Card from Suze Orman, and the Magic Johnson MasterCard – all of them introduced after the regulation named after him took effect in October 2011. So why wouldn’t he get in on the action?
Of course, I’m being somewhat facetious, but the fact of the matter is that Sen. Durbin championed the law that capped debit card swipe fees in a purported attempt to save merchants and consumers money. Instead, it ended up costing consumers, banks, and certain merchants and has led to a significant restructuring of the payments market.
Given that the Durbin Amendment recently celebrated its first birthday, let’s take a closer look at the law’s effects to date.
As alluded to above, the law effectively robbed banks of roughly
Even though prepaid cards are close relatives to debit cards, they were excluded from the law’s regulations (
Up until now, however, many merchants have undoubtedly benefitted from the law, as Heartland Payment Systems – the fifth largest payment processor in the United States – estimates that its customers have saved nearly $265 million in interchange fees since it was put into effect. The benefit has been far from universal, though. Merchants who sell predominantly low-cost goods (e.g. coffee shops) are actually seeing their interchange fees rise, according to a
Merchants also are not passing along whatever savings they’ve derived from the law to consumers, as legislators had hoped. Consumers are actually paying 1.5% more at national retailers than before the Durbin Amendment took effect, according to a recent
Merchants would, of course, argue that this number would have been a lot higher had it not been for the Durbin Amendment when you take inflation into account, and the truth is that there is no clean way of determining who is right. It is suspicious, though, that only 3% of merchants responding to a
Consumers are also seeing costs rise as a result of new checking account fees and are faced with the challenge of figuring out how to save money. If they decide to go the prepaid card route, they’ll have to figure out how to get along without a checkbook and make sense out of a plethora of different fees.
Ultimately, it seems that the Durbin Amendment has sparked a lot of change in the payments industry, just not the kind that regulators and consumers had hoped for. This, of course, could change if, rather than instituting price controls, legislators and regulators focus more on trying to create a truly competitive market. They started down that road by including provisions in the Durbin Amendment that give merchants the freedom to decline credit cards for purchases under $10 as well as provide discounts to customers who pay with certain payment methods.
Now it’s time to finish the job. By giving merchants the ability to provide discounts and assess surcharges according to card network as well as payment type, regulators would foster a truly competitive environment. Costs for merchants – and, eventually, consumers – will naturally decline.
Odysseas Papadimitriou is the founder and chief executive of Evolution Finance, the parent company for
