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Inside Washington (12/28/2010)
* WASHINGTON (12/29/10)--Debit interchange revenue for regulated card issuers will decline by 73%, according to a report issued by Oliver Wyman last week. In the U.S. banking industry, $11.8 billion of the $16.2 billion generated in debit interchange revenue will disappear from the system, according to the report, “The U.S. Debit Market and the Durbin Amendment: Worse Than the Worst Case Scenario.” Based on the proposed draft rules announced by the Federal Reserve on Dec. 16, debit interchange revenue will shrink from an average of 44 cents per transaction to at most 12 cents per transaction as of July 21, 2011. With the new rates set in reference to a subset of all debit card costs, the economics of debit card programs will become significantly unprofitable, said the report. Between 2000 and 2009, debit grew at an average annual rate of 18% and is now the most commonly used non-cash payment method. In 2009, 37.9 billion debit card transactions were performed in the U.S., representing 35% of total non-cash retail payments. Currently, card issuers generate an average of $87 of revenue per active consumer debit card per year, but starting on July 21, for banks with at least $10 billion in assets, this figure will drop to $24 per year. Card issuers with less than $10 billion in assets may also be affected, as there is no provision that requires debit networks to set different interchange rates between large, regulated card issuers and small, exempt card issuers such as credit unions. The Oliver Wyman report agrees with the Credit Union National Association’s analysis that if debit interchange revenue for smaller issuers declines, the result could be severe; not only will these programs become unprofitable, the viability of some community banks and credit unions will be threatened …


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