Durbin Amendment To Cost Financial Institutions 6.6 Billion Per Year

A new report forecasts that financial institutions affected by the Durbin Amendment will feel a revenue decline of an estimated total of $6.6 billion per year.

Javelin Strategy & Research’s latest report, “The Durbin Amendment: Planning for $ix Billion in Change to Banks, Networks, Merchants and Consumers,” studied the almost finalized regulations affecting debit interchange rates, network exclusivity, routing and interim fraud provisions.

According to the report, the loss of revenue that traditionally subsidized free checking for consumers is leading many financial institutions to re-evaluate demand deposit economics.

“Seven of the top 10 banks have recently announced plans to eliminate free checking,” Beth Robertson, the director of Payments Research at Javelin, said.

The report describes how institutions have an opportunity to repackage value-added services to their most profitable consumer segments as a way to recover revenues.

The report also studied the Durbin Amendment’s effect on merchants, acquirers, issuers and networks. In particular, how networks will work to provide new incentives to provide contract and contactless chip authentication alternatives.

“The Durbin Amendment will have a domino effect of sorts on everyone, although Durbin will impact stakeholders in very different ways,” James Van Dyke, Javelin’s president and founder, said. “Our report will not only help stakeholders understand the impact of Durbin on their business models and their relationships with consumers, but will also help them prepare for the upcoming changes.”

Javelin’s report studies each provision of the new law and reviews the impact this guidance will have on FIs, merchants, issuers, acquirers, regulators and consumers.

Key findings in the report include how the amendment will specifically affect each industry and names of networks that will lose the most as well as the networks that will benefit the most. It also questions the future of the Durbin Amendment and whether it will be overturned in 2012.

Unsuccessful attempts to delay its implementation include efforts by Sen. Ben Nelson (D-Neb.), who voted for the Durbin Amendment last year, as well as Sen. Jon Tester (D-Mont.).

“I think there is a little bit of buyers’ remorse as I talk to senators in the hallway,” Tester said, the New York Times reports.