August 19, 2016
Post-Durbin Winners and Losers
By CardNotPresent.com Staff
With the Durbin Amendment to the Dodd-Frank Act slated to go into effect on Oct. 1, how the interchange caps and transaction routing rules will affect all the players is still an open question. Yesterday Wells Fargo announced it will begin testing a $3 monthly fee for customers that use debit cards to make purchases in an effort to recoup some of the revenue it expects to lose starting in October. That move and Visa’s recent announcement that it will modify its fee structure are clear signs of the scramble taking place in a post-Durbin world.
In an effort to sort out the winners and losers, Boston-based Aite Group conducted a recent Webinar looking at the payments landscape and what all the players can expect after D-Day. In short, says Madeline Aufseeser, senior analyst at Aite Group, merchants will gain the upper hand at the expense of the big banks and the card networks.
But every merchant at every level will not find business conditions equally agreeable, even with the boost expected from interchange cuts. Large merchants that have the resources to change their POS systems to account for the new transaction routing rules will have an advantage, Aufseeser said in her presentation. Small merchants, on the other hand, may not have that luxury.
“Large merchants gain leverage as a result of Durbin but small merchants are still going to have to work hard to keep what they have,” she says. “Smaller retailers are going to have to rely on acquirers to do some of the transaction routing that large merchants are going to have available in their POS systems. Small merchants are going to have to partner with their acquirers in order to get the benefits that large merchants will have from the lower interchange expense.”
Acquirers, however, may not be in a proper mood to partner with retailers, according to Aufseeser. She notes an ongoing trend of pressure on the prices acquirers can charge their merchant clients and sees the squeeze intensifying. Acquirers will need to adapt, she says.
“Merchants are going to find new ways to cut their expenses, and they’re going to be coming back to their acquirers to do that,” she says. “Acquirers are going to have to add new benefits and features to their POS systems to make them more robust and competitive. And, I would expect the acquirers to in turn, put pressure on Visa and MasterCard to create new features that support mobile, couponing and SKU-level data capture.”
While Aufseeser says the card networks will not find advantage in a post-Durbin world, other more recent entrants to the payments world may find the new regulatory environment more to their liking. Companies in the online payments space may thrive under the new rules, she says.
“Alternative payment networks, such as PayPal, eBillme and Secure Vault Payments might have some advantages here,” she explains. “Since they are going to be categorized as three-party network systems, they can actually avoid having to follow the interchange rules. Because they are using ACH on the back end to credit and debit the accounts, these businesses are going to have a hook and a way to attract more consumers away from the banks.”
Not being subject to the new rules, Aufseeser says the alternative payment networks will be able to preserve their margins.
As a result, she says, “these companies could win considerably more business and become more powerful in the market and develop their brands to further secure business.”