Credit unions now find themselves “in the perfect position to keep their competitive advantage” and to “compete more effectively with larger institutions”
WASHINGTON, Dc – As independent analysts have long hypothesized, the small bank swipe fee scare tactics that were used to keep smaller financial institutions invested in the lobbying fight have turned out to be nothing but hype and unsubstantiated rumors.
A recent CreditUnions.com article confirms that the small bank lobbying talking point has not materialized, writing that credit unions now have “the opportunity to earn more revenue on each transaction, allowing them to compete more effectively with larger institutions.” The article continues by explaining that “credit unions certainly seem in the perfect position to keep their competitive advantage.”
During the height of the swipe fee debate, banks tried to scare Members of Congress into voting against swipe fee reforms by floating the threat of massive small bank failure as a result of a malfunctioning small bank exemption. Industry analyst Eric Grover wrote that these scare tactics were “simply intended to scare credit unions and small banks to keep them lobbying.” Meanwhile,
Andrew Kahr, principal in Credit Builders LLC, denounced the big banks for their “nonsense about bogeyman danger to community banks” and merchants affirmed their commitment to uphold the exemption.
Yesterday’s CreditUnion.com article once and for all shows that the fearmongering was little more than a lobbying tactic, and sends a warning message to legislatures and journalists who are inclined to believe the big bank talking points.
“As the credit card swipe fee debate heats up, we’re expecting the banks to use the same scare tactics that they’ve always relied on,” said Lyle Beckwith, Senior Vice President of Government Relations at the National Association of Convenience Stores. “If we want to do what’s best for small merchants and consumers, we’ll learn not to take any bank swipe fee theories at face value.”
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Still Doubting Durbin?
The new swipe fee law takes effect in less than a month, but all signs indicate it will have a minimal impact on credit unions.
Are you still concerned about Durbin’s impact? It’s been about two months since The Federal Reserve finalized the new reform on swipe fees. The Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, caps interchange fees on debit card swipes at 21 cents (plus fraud-related costs) starting in October. At the time, many credit unions were fearful that although the rules exempted them from being subject to the cap, they’d take a hit to its interchange revenue stream if credit cards.
They were worried credit card companies would fail to make the distinction in their interchange system or that merchants would somehow force exempt institutions to offer rates closer to the cap on larger institutions.
But so far the aftermath of Durbin seems to hold only positive indicators for credit unions. MasterCard and Visa appear to be staying true to their word and establishing a two-tiered system that will exempt institutions with under $10 billion in assets, which is all but three credit unions, from the interchange cap.
Late last month, MasterCard announced it planned to launch an online registration system to distinguish between banks and credit unions that are exempt, and those that aren’t. MasterCard, along with the Credit Union National Association, says it will try to monitor merchants to ensure they’re not steering customers away from the exempt debit cards. CUNA even says it’s developing a way for credit unions to report those merchants.
And then Visa followed suit. Visa vowed in January that it would follow the dual interchange system and has made good on the promise by also establishing its own debit interchange registration system. The credit card processor divided its member institutions between exempt and nonexempt then sent notices to each about their status.
Most post-Durbin analyses of how the finalized rule will affect smaller banks and credit unions have concluded, as a recent Ecommerce Times article says, that credit unions will have “the opportunity to earn more revenue on each transaction, allowing them to compete more effectively with larger institutions.”
So, while credit unions won’t really know the true impact of Durbin until after October – after evaluating their financial statements and the marketplace well into 2012 – credit unions certainly seem in the perfect position to keep their competitive advantage.
Available at: http://www.creditunions.com/blog.aspx?id=4636