WASHINGTON - Five major networks have already announced that they will implement a two-tiered interchange system so that transactions from small banks and credit unions will be processed at their current swipe fee rate. Community bankers and credit unions can now breathe a sigh of relief that the small bank swipe fee exemption in the Durbin amendment will work to their advantage and help them better compete with the big banks.
"The interchange reform law seeks to bring reasonable regulation to the debit interchange system while preserving the ability of small banks to compete in the debit card market. Multiple networks have confirmed what I have long argued: that small banks and credit unions will not be hurt by this regulation and will in fact see competitive advantages from it," said Sen. Dick Durbin (D-IL), author of the interchange reform language, in a press release. "As the Federal Reserve moves toward final implementation of this law, it€™s time to move past the misrepresentations and scare tactics and to recognize the strong pro-consumer and pro-competitive benefits of interchange reform."
Visa, Star, Pulse, Shazam and CU-24, which process an estimated 80 percent of PIN debit card transactions, have all committed to a two-tier system that will give banks and credit unions with less than $10 billion in assets higher debit interchange fees than the country€™s biggest banks. Other networks are sure to follow their lead.
These five networks have demonstrated their commitment to small financial institutions. Until other networks make their announcements, small banks and credit unions will find the most competitive advantage within these networks and will likely consider shifting their contracts unless other networks announce two-tiered systems.
"Throughout the debate over how to responsibly rein in out-of-control swipe fees, the big banks and credit card companies have sought to scare small banks and credit unions into thinking interchange reform would hurt them. This news confirms what we€™ve known all along: that this legislation will help, not hurt, small banks and credit unions in Vermont and throughout the country," said Rep. Peter Welch (D-VT), the leader of swipe fee reform efforts in the House. "Now that yet another swipe fee reform myth has been shattered, we must focus on implementing this new legislation quickly, so that consumers and small businesses alike can benefit from its much-needed protections."
Only the big banks with more than $10 billion in assets will be subject to the Federal Reserve€™s swipe fee rules. As the credit unions flood the Hill with lobbying visits, these announcements confirm that only three credit unions in the entire country, those will more than $10 billion in assets, will see any changes in their swipe fee rates.
"I€™d ask members of Congress to look critically at the rumors about the small bank exemption," said Lyle Beckwith, NACS senior vice president of government relations. "Ask the tough questions when you hear lobbyists use this scare tactic, since five major debit card networks have already shown us that small banks will be better off with swipe fee reform."
Visa announced its intention to create a two-tier interchange schedule in January, and other networks have been following suit ever since. Because banks and credit unions make decisions about which network to use when offering their cards based on which network offers them the highest swipe fees, these moves were not surprising to industry experts.
When Visa made their announcement, payments industry consultant Eric Grover said that the "move makes perfect sense." He went on to say that industry efforts to draw question to the small bank exemption were "simply intended to scare credit unions and small banks to keep them lobbying."
"We€™ve been saying it all along, and now the market has proven our point that small banks and credit unions will be allowed to continue charging their current fees and that the pricing changes will affect only the big banks," said Mallory Duncan, National Retail Federation senior vice president and general counsel. "It looks like the big banks that have been ripping off consumers with hidden swipe fees are going to have to find a new talking point now that their small bank scare tactic is moot."