Living with Durbin/VISA

With the recent announcement that the Fed is setting the debit interchange rate cap at 21 cents, the financial services community breathed a collective sigh of relief.

To be sure, 21 cents is less than what was charged in the past. But it’s better than the 15 to 20 cents that the market expected, and a lot better than the originally proposed 12 cents.

This is not to say that the new rate doesn’t represent a sizeable decrease. It does. The interchange revenue stream hasn’t completely dried, but its flow has certainly diminished.

How will banks make up the difference?

At first blush, it might appear tempting to impose new fee structures on checking accounts and other services.

Proceed with caution. Events of the past few years have left the public, shall we say, not too enamored of the banking industry in general. Granted, your financial institution may have a reputation for pristine ethics and rock-solid stability. Even so, right now we operate in an environment in which the public and the media are only too eager to paint all financial institutions with one wide, cynical brush.

In other words, this may not be the best time to answer a rate decrease in one place with a rate increase in another. In my next post, I’ll explain why the question of whether or not to raise rates on other services is, in fact, a trick question. And I’ll propose a more “customer-centric” way of approaching the problem that may serve you better.

 

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