Interchange Rule Affected Regulated And Exempt Issuers: Study

Debit-card issuing financial institutions experienced continued growth in their debit business, but both regulated and exempt issuers saw decreases in their interchange revenues since regulations enforcing the Dodd-Frank Act capped that revenue, according to the 2013 Debit Issuer Study commissioned by PULSE.

The cap on interchange rates reduced the debit interchange revenue for issuers with at least $10 billion in assets–the “regulated issuers.” The average rates declined by 59% for signature debit transactions–to 23 cents from 52 cents on average–and by 32% for PIN debit transactions–to 23 cents from 32 cents–since the regulations went into effect, the study found.

Although “exempt issuers” with less than $10 billion in assets–which includes most card-issuing credit unions–are not directly subject to the interchange cap, they, too, have seen average interchange rates decline. Exempt issuers in the study cited competitive dynamics as a cause of the two-cent decrease in their average rates for both signature and PIN debits, said PULSE’s report.  What’s more, one in three exempt issuers in the study said they expect further declines in debit interchange.

The findings support the position of the Credit Union National Association, which has said that although credit unions and other financial institutions are not subject to the regulation, they would be impacted by the interchange-fee limit. If the total fee were reduced by $1.2 billion–a number that was central to a settlement Visa and MasterCard negotiated in an antitrust lawsuit–credit unions with card programs would lose about $50 million in total revenues–or 0.5 basis points of their total assets, CUNA said (News Now Nov. 12).

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