Even though last year's financial reform package reduced debit card interchange for big financial institutions, a consultancy that specializes in financial institutions says smaller institutions will also take a hit.
The Dodd-Frank Wall Street Reform and Consumer Protection Act included an amendment which mandates the Federal Reserve to cut debit card interchange rates for financial institutions of more than $10 billion in assets. This would appear to leave debit card interchange for most credit unions unchanged. But the Aite Group, a financial consultancy, released a report today that estimated smaller financial institutions will also take an interchange income hit.
"Though larger retailers will be sophisticated enough to use BIN tables to decide what to pay which banks, millions of merchants won't have the level of sophistication required to enforce the exemption rule," Aite wrote in one part of "The New Order: How Interchange Regulation Will Change the U.S. Payment Industry."
In another part, the organization wrote that small debit card issuers will "lose revenue when merchants use least-cost routing for debit switching and steer customers to lower-cost payment methods. Depending on how the regulation is implemented," the group added, "they might be unable to benefit from the exemption and instead become collateral damage."