Analysis of Federal Reserve data by card comparison site CardHub.com indicated that debit card issuers with assets of over $10 billion are losing $8.06 billion a year from regulations implementing the Durbin Amendment debit interchange cap. Debit card issuers with assets of below $10 billion are losing $329.4 million per year, the site projected.
Interchange fees charged by large asset debit issuers have decreased significantly since the Federal Reserve's interchange fee cap took effect – falling 59.3% for signature transactions and 32.4% for PIN transactions, according to the firm's analysis.
"The effect of the Federal Reserve's interchange fee cap on large banks is really no surprise," remarked Card Hub CEO Odysseas Papadimitriou. "From the moment the rule was finalized, it was plainly obvious that large banks were going to take a big hit. The only real questions were exactly how big and how they would recoup their losses. Now we know that it costs them over $8 billion and led them to abolish debit card rewards while increasing checking account fees–changes that we should expect to be permanent."
Interchange fees charged by small banks have decreased slightly since the Fed's fee cap took effect – falling 5.6% for signature transactions and 3.1% for PIN transactions. Credit unions' interchange income held steady.
"The Durbin Amendment's ultimate impact on small banks comes as a surprise given that there is nothing in the legislation that affects them. The most likely explanation for this drop is that the significant downward pressure on large bank interchange fees swept those charged by small banks down right along with them," Papadimitriou said.
Card Hub also noted that while there is virtually no difference between what large banks charge merchants for signature and PIN debit card transactions, the smaller asset exemption allows small banks to charge what Card Hub called "a hefty premium" for debit transactions validated with a signature (64.5% more than what they charge for transactions validated by PINs).
"It's a small bank's biggest fear to be forced to charge the same interchange fees as a large bank, and the differential between what small banks charge for signature and PIN debit card transactions is certainly one of the key issues merchants will bring up in lobbying regulators and lawmakers," Papadimitriou added.
The Fed's fee cap brought interchange fees down to 2009 PIN transaction levels, even though large banks drove up their fees for such transactions by 47.8% between 2009 and the time the cap took effect on Oct. 1, 2011, Card Hub reported.
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