The EMV illusion: the connection between EMV and mobile payment.

Dai Vernon, “The Professor”, who died in 1992 was a Canadian magician and the greatest sleight of hand figure in the history of the art. He rarely performed, but he invented magic and had an enormous influence on the whole range of “sleight of hand”. And so often, the magic he was doing was to fool other magicians. Such is the case with yesterday’s announcement that the EMV AFD mandate, scheduled for 2017, is moved to 2020. The “sleight of hand”; create a crisis, propose a solution and when the true motivation for the project evaporates, move the requirement far enough into the future that its purpose fades until the need is so obscured as to not be necessary. The Professor would be proud, but for the many retailers, hardware manufactures and professionals betting on EMV at the pump, this is a cruel trick.

A few years back I wrote that EMV, while being presented as an antifraud tool, was really a disguised methodology to bring NFC to the pump. After all, if the goal was simply to eliminate counterfeit card use, swipe and PIN would have essentially eliminated that counterfeit card fraud.  So, why was EMV/NFC so important, if there were cheaper ways to reduce fraud? The answer lies in mobile payment.

During the last five years the world has witnessed the conversion to a mobile digital society. Initially the card associations sought to enable mobile through the use of NFC. This was critical because the Card Brands sought to protect their business model against disruptive models and bake bank issued cards into payment terminals and the AFD.  The ROI on mobile payment is elusive and so the EMV liability shift was created (the sleight of hand) to create the ROI needed to drive NFC to the pump. What went wrong?

Two major issues have pulled the curtain back from the EMV illusion; cost (how) and need (way). There is little to say about the cost of EMV, other than prohibitive. One MOC showed me an estimate where the cost was north of $100M, WOW!

The “why” is more complicated. Over the last two years, cloud based payment models that leverage the POS, rather than NFC at payment terminal are now proving themselves in the market. MasterCard and Visa’s agreement with PayPal, the release of standards and multiple pilots, are an indicator of their belief that cloud based solutions will lead the way in mobile. Cloud based systems do not require communication between the payment terminal  the phone, and therefore many of the arguments about NFC are eliminated.  Further, there are many use cases, like vehicle based payment or drive-troughs where cloud based solutions are more effective than NFC. If cloud-based solutions become wide spread, then NFC is no longer relevant. Further, if you believe, as many do, that millions of consumers will adopt mobile, and mobile payment will be cloud based, then as card based usage at the pump declines, the rational for the investment in EMV evaporates.

 

“Contractual conflict”; Apple Pay and MCX, the new front in the mobile payments war.

A few years ago, while at one of the major POS annual user conferences, I had the opportunity to socialize with one of the initial members to MCX. At the time, I was with PayPal and mobile payments was more of an idea than a technology. MCX had just been announced and I was learning about the “hush hush, MCX Exclusivity” requirements. I was floored. How could that be good for either the merchant or the consumer? His answer; “They really did not care if MCX ever conducted a single transaction. If allowing Visa/MC into the mobile wallet forced lower overall fees (read cards as well) then MCX would have done its job”. When asked about how profitable CurrentC would be, Lee Scott, former CEO of Walmart said, “I don’t know that it will, and I don’t care. As long as Visa suffers”. It never seemed like much of a business plan to me.

It was all such a secret. I can’t count the number of times I heard; “The first rule of MCX is; you don’t talk about MCX”. Well, judging from the news, things appear not to have worked as planned. The veil was lifted on the MCX story when Rite Aid and CVS Health pushed aside Apple Pay and in doing so revealed a new wrinkle in the mobile payment war, contractual conflict. The notion that an exclusive MCX mobile payment solution might be a lever to force card acceptance fees down seems to have reached its apex. Are retailers willing to say no to Apple Pay? The consumer is caught in the middle.

One of the ingredients in the MCX secret sauce is the idea that retailers will adhere to an exclusive arrangement thus locking out competing payments systems in the mobile channel. As Karen Webster speculates in her 10/27 blog, MCX is likely to have told both Rite Aid and CVS “You simply can’t do it. And, the fact of the matter is that you’ve been caught two-timing with Apple Pay, and that’s clearly a violation of your contract with us.” In doing so MCX is leveraging its big stick, not its economics, product features, or consumer demand, but the strength of its legal teams and the adverse contract its members have signed. “This act by CVS and Rite Aid heralds the advent of the imminent battle in the mobile payment system,” said Anindya Ghose, a marketing and information-technology professor at New York University. Now that lines have been drawn, we will learn if MCX can drive the cost of payment down, or will its own member retailers instead chose to provide their consumers with choice. Call the lawyers.

Right to the “3rd” power”: Mobile Payment the POS and ROI

The arc of loyalty/payment programing, particularly as it relates to mobile, is now mature enough for retailers to set long-term strategic goals. The high level strategy is about consumer engagement. The objective is to create a more intimate consumer shopping experience that is contextual in nature. The requirement being: “Right to the 3rd power”; the right offer, to the right person, at the right time. The tool set for loyalty, payment and the integration of omni-channel marketing in the mobile channel is the POS.

Mobile is the most important next generation service, in many ways it is here today. Consumer adoption of mobile services is exploding. The consumer is willing and ready, even waiting for the retailer to catch up. First to market retailers will be in the lead and have an advantage. Ignore mobile and you risk losing both the Millennials and the X-er’s. Is there any doubt that the next group will only be more mobile? Cards, checks and cash will exist, and will require attention, but having a mobile strategy is the key to future success.

While EMV will drive NFC to the POS, consumer engagement will be driven by merchant rewards. The days when retailers give over control of their customers to banks and associations will end as mobile payment becomes the norm. In this war for the mobile consumer, the POS and cloud-based mobile payment is supreme. The transaction is changing from the legacy model of capture/authorize and settle to a robust IP based dialogue. This dialogue is between the consumer and the POS and is about the relationship between the retailer and the consumer. Unlike today where the transaction begins when the item, coupon or loyalty card is scanned, tomorrow’s consumer will begin the engagement long before they arrive at the location. Mobile app based solutions will leverage Geo Fencing, Wireless, and BLE to engage the consumers according to their preference. The IT environment required to deliver these services must be tightly coupled to the POS at the Transaction Services Layer (TSL). This important change in the transaction flow means that payment, rather than being outside of the TSL, is now a part of the TSL. This change means that the entire legacy payments network may be disintermediated from the mobile transaction. We see this with companies like National Payment Card Association and believe MCX shares this goal.

Retailers are understandably concerned about ROI. ROI is a result of more profitable shopping. ROI is more than a function of “frequency and shopping basket”, it is about shaping the consumers purchasing decisions. People are asking about ROI and Mobile and reluctant to allow legacy payment fees into the branded app. To the extent that consumers react through the use of offers, coupons, push notifications, points etc in the mobile channel, payment is required to close the transaction within the same user experience. The notion that the mobile consumer will be interactive with the mobile experience and then be asked to use a card for payment does not make sense. Using a card in the mobile channel would destroy the user experience and make it impossible to measure conversion.

Certainly, there are many issues impacting retailers and the POS environment. The key questions is: which IT solution makes the most sense and how does it set the retailer on the road towards a larger goal of implementing a successful consumer acquisition and retention program that is “Right to the 3rd Power”?

Lower fees get the headlines, but might not be the story. Why multiple unaffiliated networks is the real bombshell in Judge Leon’s decision.

Groucho Marx once said that “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.” Judge Leon might have been better served had he considered the wisdom in Marx’s thought before his recent ruling throwing out the current Fed’s implementation of the Durbin Amendment.

When Judge Leon threw out Durbin saying “The Board has clearly disregarded Congress’s statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction” he may have opened the legislation to a potential flaw that might just make implementation of Durbin impossible

In an August 13 article published in American Banker called “Damage to Banks from Debit Card Ruling Goes Beyond Lower Fee Cap”, Kevin Wack writes “Perhaps just as significant, but less discussed, the judge also ruled that retailers must be given the choice of routing each signature debit transaction, as well as each PIN debit purchase, over at least two card networks.” Kevin is correct, fees impact the economics of the transaction, but like the highs costs of implementing EMV, multi-homing has technical implementation costs far beyond the cost of the transaction. I covered this this issue in this blog, January 2011, “Who gets to choose? Durbin’s provision on “multi-homing” and the prohibition on network routing exclusivity” Here is the issue. I asked a well know expert this question: what makes multiple unaffiliated networks a complex requirement? His answer: “most retailer’s payment systems route transactions based upon the Bank Identification Number or BIN.  They do not have the ability to make different routing decisions if a PIN is present or not.  Additionally, a lot of smaller merchants do not have direct connections to networks but instead route the majority of their traffic to a merchant acquirer who then will determine how the card needs to be authorized based upon processing agreements that retailer has in place.  While the concept of allowing networks to compete for the same card traffic sounds attractive, from a practical matter it is far more complex.  And as raised in the most current legal opinion, the ability to route between non-affiliated networks needs to be at the transaction level, not the card level. “

I wanted a bit more granularity and so another source tells me that “Although most retailers do not connect directly to debit networks, there is nothing other than cost that prevents them from doing so. As EMV comes into the US domestic market and each Debit Issuer is tagged with their own network EMV AID(application identifier on the Chip), we may see more large scale retailers choosing to connect directly with their network of choice. A lot of stuff is up in the air right now. The next 10 months will be very exciting in terms of the number of changes coming to the debit networks above and beyond Judge Leon’s judgment. I doubt if the Federal Reserve or Congress will be able to keep up with everything that is happening in this space in the interim.”

So, Judge Leon concluded that the Fed must allow retailers the choice of two unaffiliated networks for each individual purchase — whether the consumer elects to make a signature or PIN debit transaction, never mind the costs or complexity of making it so. I come way feeling like Judge Leon clearly does not understand how routing actually works especially for small merchants.  He seems to believe there is a “Payments Genie” and that rubbing the lamp makes payments happen. The intuition is easy, but the way this actually works as a technical matter I think is a mystery to people.

Big Data, mobile payments and the connected consumer

“Big Data” is a term that refers to the vast quantity of consumer information that is available both on-line through 3^rd party resources and within the retailer’s environment. Connecting Big Data to consumers through mobile payments represents the commercial usefulness of the information. Thanks to more powerful ePOS, the internet and the emergence of the “information cloud” this data can now be manipulated and utilized to drive pre-sales consumer engagement and drive sales during the purchase cycle. Big Data information is more potent when it can be applied to areas unconnected with how it was originally collected. As an example, the ability to link the CDC’s tracking of the flu with promotions for cold medications, or the ability to link coupons for hot/cold drinks to National Weathers Services tracking of temperatures. The back bone of retailer performance will be connecting Big Data to mobile payments (the consumer) during the purchase cycle through “personalization” and driving consumer engagement.

Mobile payments. The integration of the consumer through their smart phone to Big Data is the technical challenge facing the industry. Leveraging Big Data in a mobile payment environment means establishing a dialogue between the consumer’s smart phone/wallet and the ePOS at the time of purchase allowing a robust exchange of data so that the consumer experiences payment, loyalty, and offers (product recommendations, coupons) in one seamless experience.

The technical requirements of serving mobile payment and the connected consumer at the ePOS during the purchase cycle will drive change in the payments processing environment. Perhaps the greatest change is the potential disintermediation of the traditional payment processor from the mobile payment. A large shift in consumer payment behavior to mobile payment means a significant drop in card transactions across the legacy payment processing network. 

The legacy payments processing network was built to handle payments at the beginning of the electronic payments era before the emergence of Big Data. The result is that the infrastructure, while highly fault tolerant and reliable, does not lend itself well to change and is not compatible with a robust exchange of Big Data between the consumer and POS at the time of the transaction. This is great for the traditional card based ISO8583 message, but severely lacking for mobile payments and Omni-channel shopping.

The ePOS has evolved from a limited “dumb” machines built around closed systems with proprietary code to a very powerful computing device utilizing open standards. The ePOS now has the ability to communicate in an IP environment and as a result, has the ability to communicate both payment and Big Data to networks outside of the legacy payment network utilizing IP based communication.  ePOS vendors have changed their payments strategy and are moving to cloud based systems. In Petroleum all four major providers are developing cloud based payments applications that will standardize the software between the POS, EPS and Payments Cloud.

The future of Omni-channel shopping depends on the ability to communicate to the connected consumer through an IP/cloud based mobile payment with access to Big Data. Big Data is the “secret sauce” of mobile payments.

The MasterCard/Visa settlement; an alternative point of view.

Opportunities are often difficult to recognize and they do not come with their values stamped upon them. It is often hard to distinguish between easy choices and those of opportunity; such may be the case with the retail industry’s reaction to the proposed Visa, MasterCard Settlement. As it stands today the proposed “Brooklyn” settlement has been rejected by nearly all retailer associations like; NACS, SIGMA, NGA as well as multiple retailers including large national and smaller local companies and even Senator Dick Durbin has added his disapproval to the chorus of rejection. It’s fair to say that the proposal is “Dead on Arrival”. Even so, I wonder if by refusing to embrace this settlement an opportunity is being missed.

With so much opposition to the settlement, how is it possible that an opportunity may be missed? The answer lies in the fundamental assertion that retailers can compete for the consumer’s method of payment steering them to low cost payment, rather than relying on legislative price controls or judicial action that seek to control the payments industry. Core to this belief is that there is significant competition in the credit card industry, it just happens to be between banks competing for consumers, rather than between retailers and banks competing for the consumers method of payment. There is nothing unusual about this model, it’s standard platform economics. The more end-users (retailers accepting cards and consumers with cards) on either side of the platform (MC/VISA), the more valuable and hence expensive the platform. This is why banks do not negotiate fees with retailers. Their mission is adding value to the consumer to carry and use their card for payment. The result is richer reward programs that add cost and drive the transaction fees higher. The retailer’s perception is a monopolist market, when in fact, as consumers we all participate in the very same economic activity.

In today’s rapidly evolving payment landscape consumers have many payment options. Surcharging creates an opportunity for the retailer to compete with the associations and promote low cost payment options. The challenge with surcharging is that it forces retailers to compete not just for the consumers purchase, but also for their method of payment and as a result some retailers may choose to use card payment as an economic advantage. Up until the proposed settlement this concept was merely theoretical because the card association rules prohibited the activity. While some retailers had experimented with cash discounts, the concept of charging for credit or debit card use has not been tested. The reason there is no information on surcharging is because it was prohibited by the associations operating rules. The Associations prohibited surcharging because it exposes the real cost of payment to the consumer and therefore allows the consumer to understand that using their card is not free.  This capability provides a powerful new tool for retailers to steer consumer payment choice.

Now armed with the tool needed to expose this cost, retailers are more concerned about the perception and customer services issues than the costs of payment. One retailer was quoted in NACS Online as saying he wants customers “impressed by the quality of products and services they receive” lamenting that surcharges for payment may appear to penalize them for the use of the card saying “it does not make for very good customer service”. This statement tends to suggest that the current costs accepting credit cards is acceptable, a suggestion that tends to explain why the opportunity presented by surcharging may be overlooked.

It’s unlikely that we will learn the answers to these questions in the near future. The industry is committed to seeking significant concessions that go beyond the proposed settlement which means the lawsuit is likely to move forward.  Stay tuned……

Surcharging for credit versus discounts for cash; why it makes a difference and how the consumer will react.

In the struggle between the Credit Card Associations and Retailers this week’s court decision reminds me of the old western film when two guys are fighting and the guy with the rifle runs out of ammo as the other guy’s gun is a few yards away. There is that brief moment when they both realize that the game has changed and now the race to the finale is upon them.  This week MasterCard Inc. and Visa Inc. along with some large banks settled what had become known as the Brooklyn case, setting the stage for retailers to pick up the gun and shoot first.

 The weapon that the Brooklyn decision has given the retailer is the ability to surcharge the consumer for the use of a credit card.  Surcharging is a tremendously powerful tool that has the ability to dramatically shift consumer behavior. Surcharging is fundamentally different than Discounts; understanding why, is the key for retailers wishing to leverage this decision. How powerful is surcharging?  Alphawise (Morgan Stanley Research) reports that “43% of consumers would be “very-likely” to switch from credit/charge cards to debit, cash or check if asked to pay a 1-2% surcharge by a merchant”. Further, “on average, those who said they would be “very likely” to stop using a credit card would shift about 67% of their credit purchases to other forms of payments”.

Retailers have some experience with offering discounts for cash or alternative payment discounts.  In the Convenience Store Industry, the per gallon discount for cash or merchant issued debit has been moderately successful. Some merchants like Savannah’s Parker Stores, are offering up to 10 cents off per gallon for consumers using their PumpPal card. These programs are reported to have captured between 5% and 25% of their consumer’s transactions.  But if Alphawise is correct, and Parker posts a price of $3.50 with PumpPal, and then ROLLS-UP the price of gas by 10 cents per gallon for the use of credit, then according to Alphawise’s survey results,  upwards of 50% of consumers appear ready to walk away from credit cards

The reason Surcharging is more powerful than Discounts is because of “Network Effects”. Network Effects are an economic term that describes the attraction of two groups of end-users across a “platform”. The reason the card associations have never allowed surcharging is because the economic principles driving a platform (two-sided market) state that only one side of the platform can be weighted with fees to the end-user.  An example of network effects is the Adobe PDF Reader. Almost all of us have the PDF reader on our computers, and it is free. The PDF writer on the other hand is expensive. The reason the writer is expensive is because so many people have the reader. If Adobe had charged for the reader it’s likely no one would have purchased it and as a result, the writer would be valueless. The same is true for credit cards, show the consumer the real cost of using their credit card and they are likely to find another way to pay.

The question is; will the Retailers react? Like our gun fighters, there is risk going for your gun.  Mike Schumann, owner of Traditions Classic Home Furnishing in Minneapolis was quoted in the WSJ saying that he is “hoping that surcharging will become commonplace, but that small firms will not lead the charge” adding that he might charge 2.5% to 3% if his competitors adopt the practice. During a call with a national home furnishings chain, the CIO wondered aloud how consumers would react to seeing an $80.00 upcharge for a major purchase. It’s a good question. But what does seem clear, is that in areas of every day spend, like gasoline and groceries, retailers have a new tool. We’ll have to see if they choose to use it.

 

New Bank fees set the stage for Merchant Issued Debit and Rewards.

The stage is set for an epic battle between the merchant community and the financial industry to win the consumers method of payment (MOP).  This week, BoA joined the list of financial institutions announcing either fees, or cut backs in consumer rewards programs, for debit card use .  Senator Dick Durbin sounded surprised when he said of BoA’s actions; “It’s overt, unfair” adding that “Banks that try to make up their excess profits off the backs of their customers will finally learn how a competitive market works”. Many in the industry had long predicted that this would be the immediate result of the regulation (see my June 13, 2011 Blog).  Regardless of the merits of the regulation, or the banks reaction to it, one immediate result is that merchants have the opportunity to steer consumers to a lower cost form of payment (debit): the question; will they be able to leverage this opportunity, or will the payments industry adjust their payments offerings steering consumers to unregulated forms of payment with higher fees i.e. credit, pre-paid cards, etc.

The pivotal decision for merchants is how to recapitalize the anticipated saving from swipe reform and use that money as an incentive for consumers to choose a lower cost form of payment.  Many merchants, particularly in the petroleum and grocery industry are already actively competing for method of payment by offering ACH decoupled debit card programs (merchant issued debit) or cash discounts. For these merchants, and vendors offering alternative payments  like PayPal or National Payment Card Association, the Durbin Amendment is living up to expectations providing them with a strong tailwind to the merchant and consumer.

Merchants are understandably cautious as they approach payment.  While technology, investment and ramp time look like the heavy lift, the real challenge is to understand the economics.  Traditionally merchants have relied on the bank and card associations to deliver payments.  During the lead up to regulation one argument was that; “there was no competition for payment”. Merchants’ successfully argued this point, irrespective of the intense competition between banks for consumers. What was missing from the debate is that the reason consumers use one form of payment over another is often rewards. These rewards had been paid by the issuers of the card using interchange fees (as much as 50%), and now with regulation, that funding source has disappeared.  Therefore merchants can provide consumers with the same incentive to use a low cost form of payment by offering merchant issued rewards.

Finally, there is a saying “He who enrolls; controls”. Issuance or enrollment is a critical question for merchants choosing to compete for MOP using rewards. Assuming that the merchant chooses to offer rewards for a specific MOP, which MOP should it be, cash, PayPal, Google, or perhaps a merchant issued debit card.  The smartest strategy might be a flexible approach to payment where rewards are based on the costs associated with the method of payment, regardless of whether the rewards are paid for by the merchant, or a 3^rd party.

Durbin’s Catch -22, Merchant Issued Rewards.

Merchants have won a battle, but the question is: can they leverage the advantage and win the war for the consumer’s method of payment?

The phrase “Catch-22” means “a no-win situation” or “a double bind” of any type. In the book, “Catch-22”, Joseph Heller describes the circular logic that confronts an airman trying to avoid combat missions by saying that his claim of insanity is the proof of his sanity. With the passage of Durbin, retailers are faced with the same circular logic. The Catch 22 of Durbin is that consumers must choose debit if retailers are to save on interchange fees, and consumers will only choose debit if offered rewards or to avoid bank fees. Today consumers choose debit in large degree to earn signature based debit reward or because PIN debit does not have bank fees as opposed to credit cards where there are annual fees and interest.  Durbin will change that paradigm as banks make up lost revenue by eliminating signature debit and adding fees to, or eliminating, pin debit cards. If those changes occur then retailers will need to fund consumer debit rewards to promote debit payment. Because merchant issued debit rewards erode Durbin’s potential cost savings, the potential is that total debit transactional fee may be higher than those during the pre-Durbin era…Catch-22.

Durbin’s challenge to Retailer’s is how to influence the consumer’s method of payment. Just because consumers are choosing Debit today, does not mean they will be choosing Debit tomorrow. The reasons why consumers choose one form of payment over another (Debit, either signature or PIN, cash, credit, check, prepaid etc.) are complex, but “Rewards” plays a large role in the process. In fact, nearly 50% of all interchange dollars are used to fund reward programs. A quick review of Bank advertising for Debit will show that Debit Rewards is tied to Signature Debit, not PIN Debit; “rewards are ” Pen, not PIN”.  Rewards for Signature Debit, plus “No Fee” PIN debit has created significant consumer demand for debit products. The banks loss of signature debit interchange fees means that these reward programs will disappear and consumers will begin paying fees for PIN debit. The result is that Durbin will change both the Debit and Payment Card market, not just the fees.

Look for these results:

1. Look for more pressure on retailers to install Pin Pads. Signature debit will go away as Financial Institutions will not longer offer signature debit. The whole point of signature debit was capture credit card like interchange fees. Debit rewards programs are funded by credit card like interchange fees and at Durbins mandated +/- 12 cents there is no “rabbit in that hole”. The reason retailer’s implemented PIN pads (3dez) were to move consumers from Pen to PIN. If Merchants are to win from Durbin, PIN Pads will play a large role in that success; otherwise there will be no debit at retail. Durbins “$10 Billion” exemption is a wild card. If smaller institutions introduce aggressive signature debit programs at the expense of larger institutions then Durbin will prove to have cost retailers more than they will save.

2. Financial Institutions will seek ways to replace lost revenue. The most immediate impact is likely to be fees on both dda accounts and perhaps the use of debit cards either as a transaction fee or monthly fee. Banks will discriminate against Debit making it less attractive. One of my associates added “Issuer’s already have plans to discontinue issuing debit cards and returning to ATM only cards.” He adds “other issuer’s are going to place a transactional cap on debit cards instead of taking them away.  They will only allow a transaction for $50.  If the transaction is $51 – then, another $1 transaction will have to run.”  Say good-bye to friendly debit transactions.

3. Watch for growth in closed loop debit card, particularly ACH Decouple Debit.

In the short term, Merchants will realize a windfall as consumers who use Debit maintain that method or payment. Debit usage will drop off unless Merchants introduce “Merchant Issued Rewards”. Merchant Issued Rewards are another name for loyalty. I can offer more on that if requested. The question retailers need to answer is: If you must offer rewards to promote debit, why not promote your own debit card? Durbin will increase the importance of loyalty rewards as merchants compete with FI’s for the consumer’s method of payment (i.e. PIN Debit).

4. Watch for more aggressive Credit Card and Pre-Paid card offerings with lower credit card fees, easier credit and more aggressive rewards. Pre-Paid is apt to be the next place the FI’s push for consumer adoption and fees. As the economy strengthens, and consumer debt drops the structural issues negatively impacting credit will lesson. Financial institutions can impact the consumer’s attitude towards credit by being more consumer friendly. The loss of signature debit will hasten this activity.

5. One “Wild Card” is the DOJ lawsuit on credit card interchange fees. There has not been a lot of press on this, but there will be soon.

 

 

More Durbin confusion from the Fed, will they or won’t they; Bernanke Agrees!

This week Federal Reserve Board Chairman Bernanke sent a mixed message by stating that the Fed won’t be able to meet the April 21st rule making deadline but will meet the July 21st deadline for imposing the rules set by the Dodd-Frank Act for regulating the debit card business. This seemingly contradictory statement raises the question; how can the impacted businesses prepare and be ready for the rules implementation without knowing the final requirements within the prescribed time. Advocates on both sides of the issue cheered the news as another sign that their cause would carry the day.

Retail groups applauded Bernanke’s statements as a commitment to move forward and implement the rules set forth in the Durbin Amendment. One industry representative stating “This confirms the Fed’s commitment to putting forth a rule that has been thoroughly vetted” adding “there is no need for a congressional mandated delay.  

Meanwhile opponents of the legislation lined up for battle pinning their hopes on exactly that type of congressional mandated delay as Sen. Jon Tester attached the “Debit Interchange Fee Study Act” to the Small Business Reauthorization Act. Passage of this act would move Durbin into a two-year obscurity as quickly as it originally appeared.

The confusion now extends to consumers who are equally puzzled as more information on Durbin’s impact makes it into the main stream press. Last week a Time Magazine article by Bill Saporitio explained to consumers that they may see lower retailer prices as a result of lower fees while warning that free checking may also vanish along with rising bank fees. Hilary Shelton, Washington Bureau Director for the NAACP echoed the same concern when she testified saying “that Regulators should guarantee it (the rule) wouldn’t push poor and minority consumers out of the banking systems”. Consumers are left wondering, is this good or bad? 

(http://www.linkedin.com/in/peterguidi)