July 13, 2011
MSNBC published an interesting look today at how debit interchange limits of 21 to 24 cents may affect investor interest in the payments sector. Author Neha Chamaria noted that Visa has already predicted less growth in revenue and earnings for fiscal 2012 and felt that MasterCard would likely be facing a similar scenario. And since banks now also face decreased fees, Chamaria mused that the two networks margins could take a hit if the number of cards issued by banks declines.
“One company that is in a comparatively better position now is TCF Financial, which filed a suit against the rule since it gets significant revenue from debit card fees,” he continued. “The company, which earned $111 million from debit cards last year, could have lost almost 80% of its future earning power if the cap been fixed at $0.12. Though TCF will still lose a substantial sum, it can breathe a little easy with a lower potential loss.”
Chamaria reports KeyCorp now expects to lose $50 million and $60 million in revenue, half of its earlier estimate of $100 million had the cap been set at 12 cents. The same margin holds true for Bank of America, which now predicts revenue loss of $1 billion as opposed to $2 billion.
As far as means to recoup revenue, Chamaria felt banks could raise or add charges for other consumer products or do away with particular benefits. He noted Wells Fargo and JPMorgan Chase have already halted rewards points on certain cards.
“In this case, a company like American Express could gain since it makes a lot of money on prepaid cards instead of debit cards, which do not fall under the purview of the current debit card rules,” he stated.
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