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The Durbin Amendment: Planning for $ix Billion in Change to Banks, Networks, Merchants and Consumers
Javelin Strategy & Research, Aug 2011, Pages: 26
On June 29, 2011, the Board of Governors of the Federal Reserve System announced definitive Durbin-based regulations affecting debit interchange rates, network exclusivity, and routing. Fraud provisions were also announced but remain in an interim status with comments due by September 30, 2011. This report explores the initial outcomes, implications, and longer-term expectations of the Durbin Amendment as it moves toward initial implementation in October of this year, detailing the amendment’s effects on various stakeholders and making recommendations about how institutions, networks, and others should respond.
Primary Questions
- What are the final and interim Durbin Amendment requirements?
- How will the Durbin Amendment affect various stakeholders: networks, issuers, acquirers, merchants, consumers, and regulators?
- What additional consequences will accrue to affected parties?
- What environmental changes will be fostered by Durbin Amendment implementation?
- Is the Durbin Amendment a harbinger of additional regulation of the card and overall payments industry?
Methodology
This report is based on extensive Javelin analysis of two key documents generated by the Board of Governors of the Federal Reserve System, including “Federal Reserve System, 12 CFR Part 235, Regulation II; Docket No. R-1404, Debit Card Interchange Fees and Routing, June 2011” and a letter to the Board of Governors from the Federal Reserve System staff titled “Final rule on debit card interchange fees and routing and interim final rule on fraud prevention adjustment” dated June 22, 2011.
The report also includes a Javelin forecast of financial institution (FI) revenue losses attributable to implementation of the Durbin Amendment. This estimate was developed using baseline data collected by the Federal Reserve Board through its 2010 Durbin-related issuer surveys and using issuers’ debit and prepaid transaction dollar volume as cited in The Nilson Report.
Finally, the report incorporates data from two Javelin surveys. The first, Javelin’s Seventh Annual Card Issuers’ Safety Scorecard,3 was conducted between April 2 and May 24, 2011, and reviewed the consumer-facing protective features of 23 issuers selected from a list of the top 50 U.S. Visa/MasterCard credit card issuers. The criteria evaluated were categorized into Javelin’s Protection, Detection, and Resolution model. The report also incorporates survey data that Javelin collected online in September 2010 from a random-sample panel of 4,998 consumers. This survey targeted respondents representative in proportions by gender, age, and income of the overall U.S. online population. The overall margin of sampling error for this survey is ±1.39 percentage points at the 95% confidence level. The margin of error is larger for subsets.
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