Life After Durbin: The Gloves Are Coming Off

Life After Durbin: The Gloves Are Coming Off
This week Visa held its earnings call and one of the key announcements was a pricing restructuring. In what appears to be a direct response to Durbin regulations, Visa is lowering its variable per-transaction fees and introducing a “network participation fee” in the United States for all of its debit, credit and prepaid card services. The participation fee will apparently be based on a merchant’s size and the merchants’ number of locations. While not disclosing the specifics, Visa claims that the overall fees will be reduced. According to JP Morgan securities analysts, Visa has about 75% signature debit market share and 55% PIN debit share in the US, so clearly has the most to lose from the final Durbin ruling requiring all debit cards to carry two unaffiliated network badges. Many large issuers in the past carried both Signature and PIN networks from the same company (e.g. Visa/ Interlink or MasterCard/ Maestro); now, they will have to either change one of the networks or to add another network to their cards, which will give more routing choices to the merchants. Visa’s change to the pricing structure is designed to keep competition at bay and to encourage merchants to continue routing the transactions over Visa’s networks and benefit from lower transaction fees and economies of scale. The last thing that the networks need is a price war and Joe Saunders, Visa’s chairman and CEO was keen to make that point by saying “we have no intention, nor do we think we have to start, a race to the bottom” on pricing. Yet, it is clear that Visa does not intend to give up its leading market position without a fight. The gloves are coming off; it will be interesting to see how MasterCard responds. Their earnings call is next week – not long to wait.

Responses to Reg E

Responses to Reg E
In the Celent report Reg, Reg, Go Away: Sorry Banks, They’re Here to Stay, I laid out a stark landscape for checking accounts due to the implications of Reg E. Revenue will drop and profits will drop likely moving into loss. What should banks do? A few of the options were:
  • Raise price
  • Create bare bones accounts
  • Create bundles
  • Reduce cost
Bank of America has a clear strategy. They have indicated that they will not go on an opt-in campaign for one time debit and ATM transactions. This is in great contrast to JP Morgan Chase who is aggressively pursuing opt-in. Bank of America is pursuing a number of other strategies. One, laid out in the report is a small business bundle: “Bank of America’s Small Business Checking Bundle includes a Business Checking Account, a personal checking account for the business owner, and no cost so long as the customer uses his Visa debit card once a month.” And now American Banker reports that they are working on developing a bare bones account with fees for value added services. They just introduced a fee for printed statements for certain accounts in Georgia, clearly a trial for larger geographies. Reg E is a game changer in retail banking and banks need to come up with some proactive response, as Bank of America and JP Morgan Chase are doing. What is your bank doing?