The Changing Debit Market

How post-Durbin developments are impacting credit union strategies.




Debit interchange reimbursement fees represent an important source of revenue for financial institutions. Revenues earned from interchange help credit unions keep member fees low. The enactment of the Durbin Amendment has produced the intended results for large debit issuers; interchange rates have fallen dramatically. However, as widely discussed in the lead-up to the finalization of the Durbin Amendment rules, exempt issuers are unlikely to be completely immune to reductions in interchange.

Debit industry dynamics were fundamentally altered by the enactment of the Durbin Amendment. Most notably the legislation introduced interchange price controls for issuers with over $10 billion in assets (i.e., covered issuers), required participation in two or more non-affiliated networks for all issuers, and prevented issuers and networks from inhibiting a merchant’s ability to route transactions to its preferred network. Financial institutions with less than $10 billion in assets were exempt from the interchange cap (i.e., exempt issuers).

In the months since the Federal Reserve announced its final rules, there has been a flurry of activity across the debit value chain as issuers, networks, and merchants seek to adapt to the new environment. Among the more substantial changes has been the reaction to merchant controlled routing. This adjustment has shifted market power to the merchants and significantly altered the basis of debit network competition. Networks, which historically focused their strategies on issuer participation, have had to secure their card bases while simultaneously developing approaches for winning merchant routing decisions. Adding to the shifting landscape are the network innovations deployed by Visa and announced by MasterCard. These developments have heightened competitive fears among the PIN point of sale (POS)-only networks. Taken together, market and competitive forces are reshaping the debit industry.

Of most concern to issuers during this period of change is the ultimate effect on interchange rates. While the Durbin Amendment notably excluded exempt issuers from specific price controls, many have speculated that it would be challenging to insulate the exempt and covered markets from one another due to market forces and industry practicalities. To date, there has been some data published to suggest that exempt issuer interchange rates have fallen, albeit modestly. In the longer term, questions remain about the ability of networks to preserve higher interchange rates for issuers below $10 billion in assets.

To learn more, download the full white paper from CSCU and First Annapolis The Changing Debit Market: Post-Durbin Developments at

Bob Hackney has been president of CSCU since 1998 and has more than 15 years of card industry experience including 5 years with Fidelity/Certegy where he held the positions of Vice President-Controller and Vice President-National Accounts. Mr. Hackney served on Visa’s Deposit Products Executive Council, comprised of executives from the largest debit card issuers in the US from 2002-2006. He also served on the Visa U.S.A. board of directors from 2006 –2007 and the Visa International and Inovant boards of directors in 2007.

CSCU is the credit union industry’s advocate, partner and leader in total payments solutions. Created by and for credit unions, CSCU is driven by the same principles that guide the industry. CSCU’s services and offerings are focused on driving the growth and success of our 2,700 member credit unions.