Recouping Lost Debit Interchange Fees With Prepaid Cards
Report Summary
Recouping Lost Debit Interchange Fees With Prepaid Cards
Shifting the use of debit cards to prepaid cards among a relatively small set of customers could help banks replace anticipated lost interchange fees.
Boston, March 21, 2011 – A new report from Aite Group provides a roadmap for recouping a significant portion of debit interchange fees at financial institutions through promoting the use of prepaid cards. Based on a December 2010 Aite Group survey identifying the payment behaviors of 1,011 U.S. consumers, the report provides five scenarios for recouping lost interchange fees to varying degrees.
As of March 2011, proposed legislation to revamp the debit interchange system in the United States has not been finalized. The most recent proposal would set the interchange fee that banks receive at US$0.12 per debit card transaction, down from the current US$0.44 per-transaction average. Regardless of the final outcome, banks are looking at a steep reduction in fee revenue, and many are already re-pricing their checking-account products in an attempt to recoup it. Aite Group believes that banks can recoup from 20% to more than 50% of anticipated lost debit card interchange revenue by marketing prepaid cards to their customers. Importantly, this recouped revenue would come strictly from interchange—not from any additional fees levied on bank customers.
“Proposed changes in debit interchange regulations have banks scrambling to make up for anticipated reductions in revenue, including imposing fees on checking accounts and debit card use,” says Ron Shevlin, senior analyst with Aite Group and author of this report. “Aite Group believes that banks can recoup a significant percentage of anticipated lost debit interchange revenue by marketing prepaid cards, which carry a higher interchange rate than that proposed for debit cards. This could spare reputational damage resulting from applying new fees to old products.”
This 28-page Impact Note contains 17 figures and 14 tables. Clients of Aite Group's Retail Banking service can download the report.