Large US banks are pursuing acquisitions to bypass regulations that cap debit card transaction fees. The goal is to eliminate intermediaries in card transactions and deal directly with merchants. The move is aimed at avoiding fee cap regulations that amount to billions of dollars annually.
According to The Wall Street Journal on Wednesday, major banks including JPMorgan Chase, Bank of America (BofA), Wells Fargo, and PNC Financial Services Group held preliminary talks over acquiring a payment network owned by fintech company Fiserv. Earlier, Capital One Financial acquired Discover Financial for $50.6 billion (about 77.3 trillion won), securing a network that excludes intermediaries in card transactions and allows direct dealing with merchants. A payment network is an infrastructure system that handles authorization, settlement, and clearing among banks, merchants, and consumers during card transactions.
The reason large banks are pursuing this is that owning a network can exempt them from federal law regulating debit card fee caps.
These fees amount to billions of dollars annually across the industry. The 'Durbin Amendment,' included in the 2010 Dodd-Frank Act, placed a cap on the fees that large banks collect from merchants on debit card transactions processed through external networks. However, if a bank owns the network directly, it is exempt from this cap regulation.
The Fee Charged on Every Debit Card Swipe Ultimately Falls on Consumers
The 'interchange fee' is paid by merchants when consumers pay with debit cards, and most of it goes to card-issuing banks and financial institutions. The Durbin Amendment required the Federal Reserve (Fed) to set caps for financial institutions with assets of $10 billion or more.
Banks argue that interchange fee revenue helped cover the costs of what were once free checking accounts and debit card reward programs. Merchants and regulatory advocates counter that lower fees have been passed on to consumers, contributing to price stability.
Whether the deals will materialize is uncertain. Some of the banks that reviewed the Fiserv network have already concluded that progress would be difficult, sources said. Some banks, concerned about backlash from lawmakers, regulators, and merchants, expressed their concerns privately.
Meanwhile, Fiserv owns two debit card processing networks, 'STAR' and 'Accel.' The company has been struggling, with its stock price recently plunging about 70% from a year earlier.
