1) if a retailer offered me an average savings of $0.32 ($0.44 average interchange fee in 2009 less the new $0.12 proposed cap from the Fed) my response would be that I do not use a debit card because do not like them as the liability protections are much weaker on them and there is a direct link to my bank account which provides me no float and reduces the level of security in the event the card is lost or stolen. My next response would be “don’t try to tell me which card to use because I want the rewards on my American Express and I don’t care about the $0.32 savings.
2) do you really think that the retailer will pass on the savings to the consumer. N-F-W. That retailer, who, by the way, has been bitching about the high interchange fees will be pocketing any difference that the Fed gives him.
3) so, since consumers will not see any savings from the reduction in interchange fees they will not change their behavior at the point of sale.
4) in addition, if the new fees are actually ratified, which is very far from certain, I predict the death of signature debit cards. Here’s why. Banks, whose interchange fees will have been cut, must find other ways to replace that lost revenue. They will do so by increasing other fees on those consumers who use debit cards. Once consumers realize that they are the ones that are paying for the Fed’s interchange fee reduction, they will realize that using a signature debit card is a losing proposition and go back to plain old charge/credit cards like those from American Express or maybe even those Green Dot prepaid cards if they don’t have access to credit. As signature debit usage declines, banks will de-emphasize this product and move on to the next big thing.
5) so, it a very indirect and circuitous way, the reduction in interchange fees could actually help American Express’ business.
While Chris Brendler may or may not be correct on his view that there is risk that Congress comes after the credit interchange, that is not currently on the table and may not ever be on the table once the true effects of the debit interchange are revealed, his view on the direct impacts to American Express from the interchange fee reduction is far from accurate.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.