Fed: Small Banks Not Feeling the Hurt from Debit Interchange Limits
Despite some claims from the banking industry that small banks may be at a competitive disadvantage in a post-Durbin Amendment interchange environment, small banks have not yet suffered from debit card interchange caps, according to a new study from the Federal Reserve Bank of Philadelphia.
The amendment required the Federal Reserve Board to impose a ceiling on debit interchange for banks with assets of at least $10 billion, leaving smaller, community banks exempt. However, expectations from the banking industry have been that smaller banks would face competitive pressure to lower their interchange even though they weren’t required to do so by law. The report says that the amendment generally reduced debit interchange fees to about 22 cents per transaction from 44 cents. According to the Philadelphia Federal Reserve report, the maximum debit card interchange stands at 21 cents per transaction and 5 basis points multiplied by the value of the transaction. For an average debit card transaction of $38, the interchange could reach approximately 24 cents, according to the Philadelphia Federal Reserve report.
There was “no such [interchange] decline for small banks,” the report says, and the “volume of transactions conducted with cards issued by exempt banks is [growing] faster than it is for large banks.” That means those smaller banks, at the least, have yet to take any major revenue hits from the limit on debit card interchange.
But the report’s authors haven’t ruled out competitive pressure, noting that “it is possible that longer-term competitive effects might yet put small banks at a disadvantage.”
The new report won praise from two retail industry groups. “Banks have been throwing out this smoke screen for years, pretending small institutions would get hurt despite the fact that only about 100 huge banks are subject to the law,” said Mallory Duncan, senior vice president and general counsel of the National Retail Federation and chairman of the Merchants Payments Coalition.