Post-Durbin Strategies of Banks

Navigator Edition: October 2012
By: Andrew Gordon

First Annapolis recently interviewed a selection of leading non-exempt debit card issuers to gain insights into how their strategies had changed in the year following implementation of the new regulations.  Ten non-exempt (i.e., assets >$10B) issuers completed online surveys and were interviewed to understand the tactics they employed to address the per transaction revenue reduction mandated by Durbin.  The interview findings underscore the dramatic effects of the regulation on the debit issuing market.

Figure 1: Non-Exempt Issuer Interchange per Transaction

Source:  First Annapolis Consulting research and analysis of issuer data.

Surveyed issuers reported earning interchange at or near the maximum amount allowed under Regulation II, as networks competed aggressively to secure issuer participation, with differences between PIN and Signature debit interchange mostly attributable to differences in transaction size.

Despite earning near the maximum interchange allowed, participants noted an average reduction of about 50% from pre-Durbin levels.  To mitigate this decline, issuers described a number of revenue-generating and expense reduction strategies they have implemented, or plan to implement.

Figure 2: Strategic Framework of Durbin Responses


Source:  First Annapolis Consulting research and analysis.

Revenue Generating Strategies

  • Nearly all issuers surveyed re-priced select checking accounts by adding a monthly maintenance fee.
  • Roughly half introduced or increased ancillary checking account fees, such as:  debit card replacement fees, rush card replacement fees, foreign ATM surcharges, and foreign exchange fees.
  • A few issuers introduced “value-added” DDA features such as I.D. theft protection.
  • One third of issuers that do not offer a general purpose reloadable (GPR) prepaid card are evaluating or have decided to launch a GPR card program.
  • One issuer surveyed re-entered the credit card issuing market.

Expense Reduction Strategies

  • All issuers eliminated issuer-funded debit reward programs.
  • A limited number of issuers eliminated debit card specific benefits offered by Visa and MasterCard.
  • Most issuers targeted back-office expenses, although only a few reduced staffing levels.
  • Every issuer renegotiated third party vendor fees for processing and network access.
  • A few issuers plan to enhance self-service capabilities to reduce branch related expenses.
  • One issuer is actively promoting PIN POS to reduce fraud related expenses and lower processing costs.
  • One issuer enhanced fraud prevention systems and increased fraud prevention triggers.
  • A few issuers are changing card reissuance practices to eliminate costs associated with issuing inactive cards.

First Annapolis anticipates that issuers will continue to develop new revenue generating and expense reduction strategies to replace interchange revenue post-Durbin. Issuers should continuously monitor effective interchange rates and transaction routing to protect remaining margins, and explore strategies to enhance volume, revenue, and most importantly, margin on their debit portfolios.

For more information, please contact Andrew Gordon, Consultant specializing in Deposit Access,

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