Bill Hanifin
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Navigating the business landscape requires more discernment and wisdom than ever. It seems to be the season of negotiation, and lobbyists from both sides of a case seem willing to
take huge gambles for a chance to win big.
When the National Football League’s collective bargaining agreement expired on March 11, the locked-out players responded swiftly, filing an antitrust suit that challenges a wide range of NFL rules as well as the work stoppage. The National Basketball Association is facing a similar standoff and, according to some sources, both sides are willing to risk an incredibly lucrative business for just a wee bit more money (well, maybe a lot more).
Just as difficult as it is to say who’s to blame for the NFL work stoppage, it is difficult to predict where current negotiations around the Durbin Amendment will end. We reported last week that Durbin had registered it first Loyalty program kill. The count was actually “2” as both Regions Bank and PNC Bank announced changes to their relationship banking programs.
Following the two bank announcements, JPMorgan Chase announced that it is considering capping debit card transaction limits at either $50 or $100. According to my calculations, the average transaction amount of all debit transactions for the top 6 debit issuers (Bank of America, Wells Fargo, JPMorgan Chase, US Bank, PNC Bank, Regions Bank) was about $41 in 2009.
The average transaction amount for signature transactions, those to be impacted most by Durbin, was slightly higher at nearly $43, but in any case, you can quickly understand that placing a $50 cap on debit transactions, the product would lose its utility for most consumers. Placing a cap of any kind, in my opinion, could spell death for Debit, so my initial shock upon reading this news quickly transformed into hope that the JPMorgan Chase announcement might be nothing more a negotiating ploy in the fight to stave off implementation of interchange legislation as currently written.
Debit cards are referred to by some in the payments industry as “deposit access” products. They were created to ease consumer’s access to their own money and as a welcome mat to a stickier relationship. The reduction in processing costs from paper checks was foundational to the business case and was enhanced by the prospect of incremental spend and fee income. Debit card loyalty programs were built with an expectation of incremental spending with the product and, to an extent, by assuming that average ticket size will increase.
I am hopeful that the chain of business logic circulated over the past 10 years won’t be broken in favor of a gamble against interchange legislation. In any event, it seems that the banks are preparing for the worst case to become reality.
Loyalty marketers with a stake in financial services and debit card rewards programs should give this subject serious thought and be prepared to make rapid adjustments in their own market strategies.
