The impact of debit interchange regulation and what financial services institutions can do to support a positive outcome

In 2010, the U.S. Congress passed the Dodd-Frank Wall Street and Consumer Protection Act, a sweeping change to financial regulation in the United States. The Durbin amendment, part of the Dodd-Frank Act, allows the Federal Reserve board to implement a comprehensive system of debit card interchange. The amendment establishes standards for an interchange fee, and prohibits issuers and networks from restricting the number of networks over which an electronic debit transaction may be processed.

Several countries have experienced similar reform, with Australia being the first country to implement regulatory changes related to the debit card interchange fee. The impact of these regulatory reforms in Australia has been positive, with the Reserve Bank of Australia concluding that merchants’ lower costs are flowing through as lower prices for consumers. There has also been a stronger growth in new debit accounts since the reforms. Canada, New Zealand, and the European Union have also taken similar actions relating to interchange fees over the last few years.

This paper looks at how banks should take a holistic approach to address the new debit card regulation by overhauling payment systems, increasing flexibility to support changing regulations, and enhancing the predictive analytics capabilities required to assess the impact of the regulations in diverse situations.