Cap on Debit Card Swipe Fees is Stifling the Profitability of Big Banks

The Durbin Amendment that went into effect on October 1 which caps the amount of money banks are allowed to collect from retailers by way of interchange fees per debit card transaction are having a much costlier effect on the bottom lines of many banks. Wells Fargo and Bank of America specifically had their earnings estimates lowered recently as a result of revenue lost because of Durbin, in addition to other problematic issues.

BOA`s CEO Brian Moynihan made an effort to minimize the impact of Durbin during a recent meeting with investors, focusing instead on the bank`s card services portion of the business by saying, according to Forbes, that "a few years ago, this was a business that had the biggest risk in it. It`s recovered both from the recession, and also more lately, by the revenue lost to regulation. The revenue is largely behind us."

A pre-Thanksgiving report released by Barclays predicted that the Durbin amendment would cost banks a combined $1.55 billion in revenues in the fourth quarter, with Bank of America being one of the banks expected to feel the heaviest impact.

Most banks have been making efforts to mitigate the swipe fee revenue losses by increasing fees elsewhere, raising minimum balance requirements on accounts and slashing debit card rewards programs. Bank of America`s short-lived plan to charge customers $5 per month to use the debit cards for anything other than ATM transactions was one of the more infamous attempts. BOA and other banks considering the implementation of a similar fee abandoned that tactic in the face of widespread consumer outrage.

Banks have also been doing what they can to promote credit card usage over debit cards, enticing consumers to favor their credit cards at the resister by offering increased perks, bonuses and other incentives.

The ever-increasing occurrences of identity theft may strangely be working in banks` favor. Because of the better consumer protections offered on credit cards, experts are advising the public that paying for purchases online and elsewhere with a credit card is the safer option.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.