Threats To Interchange—More Than Just An Income Issue
The financial services industry is still holding its breath awaiting the repercussions of the Durbin Amendment reforming debit interchange. The initial threat for which many are preparing is a material reduction in non-interest income. Although the amendment exempts financial institutions with less than $10 billion in assets, opponents argue that merchants will (of course) coerce consumers by any means necessary to use lower-interchange payment forms. But what operational expenses might be involved? While many are focused on the direct impact to the bottom line, there is also the challenge of implementation and the associated cost.
A recent statement from William Sheedy, a Group Executive for Visa Inc., noted that:
The Durbin Amendment will be expensive and challenging to implement and will likely require changes by all stakeholders from the point-of-sale through to the issuer.
The statement also mentions that the two separate interchange structures are compounding the issue—noting that the degree of difficulty in implementation will depend upon actions by all stakeholders in the system and, of course, the details of the final regulation.
This is just one more threat facing decision-makers. Uncertainties that could result in significant financial pain can impact product offerings, service levels and strategic direction. Our suggestion is to turn these high-level threats into opportunities to reevaluate your business model by test driving how life might be if a particular threat were to become a reality. If the threats don’t materialize, the worst that happened is decision-makers invested more time to think deeply and strategically about their business.
