Banks Buying Debit Card Networks
Are debit card reward programs going to make a comeback?
A recent Wall Street Journal article shared that some of the largest banks in the US are exploring options of buying debit card payment networks.
When you make a purchase with a credit or debit card, the merchant pays an interchange fee (often called a "swipe fee") to the bank that issued your card.
Long story short, the Durbin Amendment in 2010 legislation after the 2008 financial crisis capped interchange fees for large banks and required transaction routing competition for debit card purchases.
Debit network companies began to grow as merchants didn’t have to deal with higher fee processors like Visa and Mastercard.
And debit card rewards were wiped out because banks lost billions of potential revenue to lower fees and other processors.
Now, the banking landscape could be changing further if big banks purchase these debit network companies and route their own debit card transactions.
Capital One already purchased Discover, which included their debit card payment network.
So why does all of this matter?
We could see debit card rewards programs make a serious comeback in the future.
With increased revenue, there could also be lower bank fees, better fraud protection, and newer features.
On the contrary - retail locations who impose credit card processing fees to recoup higher costs could soon expand to all card transactions - including debit cards.
They could even increase prices.
Here’s the current structure:
Consumer → Bank issues debit card → Independent network → Merchant
Here’s a potential future:
Consumer → Bank issues debit card → Bank-owned payment network → Merchant
The battle between banks and merchants is a never ending one.