Durbin Amendment Changes to Debit Card Economics Harm Consumers, Says TSG Metrics

OMAHA, Neb.--(BUSINESS WIRE)--TSG Metrics, a division of The Strawhecker Group, today released analysis of the economics of debit signature and PIN debit transactions following interchange fee regulations implemented October 1. The regulations in the Durbin Amendment to the Dodd-Frank Act cap fees card-issuing banks can collect when their customers use a debit card to make a purchase. Complete analysis is available at http://bit.ly/ob8WM1

TSG Metrics finds changes to the economics of debit purchases have potential to drastically alter the overall debit market place. Consumer influence in payment method preference is likely to be substantially diminished as consumers will be steered towards spending habits that don’t benefit them, but that benefit banks and merchants instead. Reasons for this include:

• Most merchants who sell predominantly small-ticket items will likely see increases in their interchange fees compared to pre-Durbin costs; these merchants will deter consumers from using debit for small-ticket items.
• Regulated banks are incented to push consumers towards debit usage for these smaller purchases and are no longer incented to drive towards higher-ticket usage since no additional revenue is produced from a larger ticket. Additionally, banks are now more inclined to drive consumers towards credit card usage instead which may be achieved by increasing fees for debit services (Recent Bank of America announcement, for example).
• Consumers prefer using debit cards now more than ever as their volumes surpassed credit cards’ for the first time in late 2008. Despite this, consumers are now disenfranchised as merchants and banks will fight to push merchants towards utilizing payment methods that favor their new positions due to Durbin.

The Durbin Amendment regulates only card-issuing banks’ interchange fees, not the various additional fees that go to other companies that make debit card transactions possible. A detailed comparison of the debit value chain before and after implantation of the Durbin Amendment’s interchange provision is available http://bit.ly/ob8WM1

About TSG
The Strawhecker Group (TSG) is a management consulting company focused on the payments industry. The company specializes in providing financial institutions, merchant acquirers, issuers, card associations, ISOs, processing companies, large merchants, and the investment community with advisory services to maximize their growth and profitability. TSG is also a resource of merchant acquiring industry research, benchmark studies and developing trends. Visit http://www.thestrawgroup.com for more information.

Contacts

The Strawhecker Group
Mike Strawhecker
Director of Marketing & Strategic Research
402-452-3663 (O)
402-250-7198 (C)
mike@thestrawgroup.com