“The latest Debit Issuer Study provides more evidence that growth in debit remains robust even in the face of significant regulatory headwinds,” Steve Sievert, the executive VP of marketing and communication at PULSE, said, PYMNTS.com reports.
The study found that 76 percent of consumers have debit cards, a three percent increase from 2010. The number of debit card purchases per person, as well as PIN debit transaction volume, also increased from 2010 and 2011.
Regulation II is a provision mandated by the 2010 Dodd-Frank Act that limits debit interchange fees charged by financial institutions with at least $10 billion in assets. Eighty-nine percent of large debit issuers said that regulatory pressure will be a challenge for the industry in the next year, according to PYMNTS.com.
The rule capped the amount that “regulated” debit issuers could charge to $0.21 plus 0.05 percent per transaction in addition to the $0.01 for the fraud-prevention adjustment. The cap significantly reduced debit interchange revenue, as the average interchange rate for signature transactions fell by 55 percent and by 28 percent for PIN transactions.
“The impact of Reg. II is being felt most strongly by regulated entities,” Inderpreet Batra, an Olivery Wyman partner who helped spearhead the Debit Issuer Study, said, PYMNTS.com reports. “While interchange fees for regulated issuers declined by more than half for signature transactions, ‘exempt’ institutions took only a [three] percent hit—at least so far.”
Revenue decreases have led many financial institutions to get rid of programs like debit rewards and to charge extra fees in other areas. Half of all regulated issuers that offered a rewards program ended their programs last year while another 18 percent of regulated issuers plan to alter their programs by the end of 2012.