Durbin Amendment’s minimal impact on small bank revenue leads some to roll out new debit programs

Bill Hampel

Bill Hampel

More than one year after the Durbin Amendment took effect, small banks have seen little impact on interchange revenue, leading many community institutions to promote the use of debit cards.

The Durbin Amendment applies to banks with more than $10 billion in assets, exempting small community banks from the measure. Large banks have been faced with declining interchange revenue, forcing many to implement new fees to offset the loss of income. The move has led some large bank customers to opt for smaller institutions to avoid the fee increases, The Commercial Appeal reports.

Smaller banks have introduced new strategies to take advantage of the ability to keep fees low for customers. Some institutions have introduced new rewards programs for debit cards and checking accounts in order to attract customers.

“We are doing a lot to promote our checking accounts, and in particular, checking accounts that require debit cards,” Lisa Foley, the executive vice president of retail banking at Magna Bank, said, according to The Commercial Appeal. “We have launched certain products that promote debit card usage.”

Community banks have not historically focused on interchange revenue as a source of profit, and many institutions are choosing not to even if swipe fees boost their bottom line because the revenue may not always be there in the future.

“We saw the first-ever decline in interchange revenue for credit unions [in the third quarter of 2012],” Bill Hampel, the chief economist for the Credit Union National Association, said, The Commercial Appeal reports. “We are concerned about whether that was a one-time downward shift of the first of several quarters of decline.”

Because some small banks lack the infrastructure to issue their own cards, they are forced to purchase debit card programs from larger lenders and share the interchange fee revenue, resulting in the revenue decline.

Though some consumer groups maintain that small banks may have to resort to higher fees in the future to offset the reduction in interchange revenue, a recent report from the FTC revealed that exempt financial institutions have seen revenue affected little by the Durbin Amendment, according to The Commercial Appeal.

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