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Beyond the Transaction: Every Transaction Has a Story

The Durbin Chickens Start Coming Home to Roost

While no thunderclap, JPMorgan Chase’s decision this week to drastically cut its debit rewards program is certainly indicative of what consumers should expect as a result of the post-crisis legislative and regulatory onslaught on the payments industry.

Alone, actions like this by PNC Bank, Chase and Regions, among others, are probably not enough to pry many customers away from their bank: only seven or eight percent of U.S. consumers change banks every year, pre- and post-crisis, according to the 2010 TNS study Market Effectiveness in Consumer Banking.

What banks’ shying away from debit rewards is likely to do is shift volume away from debit cards to credit cards for those who pay with plastic. If the issuing bank has both credit and debit relationships (cue angelic choir and massed harp arpeggios), then all is well. Otherwise, not so much.

The industry’s long-term strategy centers precisely on getting both credit money and deposit money spend onto plastic. It’s also a more responsible and consumer-friendly approach to the banking business. So right off the bat, Durbin militates against all that.

An interesting nugget in the American Banker article on this news is the fact that the bank will only be able to afford “’a very small’ group of debit customers [to] potentially still be able to participate in the program,” a spokesman told the American Banker reporter.

Now, who do you think comprises that “very small” group of customers? That’s up to the bank, of course, but simple economics would suggest that they’re going to be affluent customers, whose deposit levels make them profitable under any circumstances.

Readers of this space have already heard how regulation will force some consumers out of the banking system entirely and into the arms of payday lenders.

Now a popular and innovative program is likely restricted to just the affluent consumer. What’s wrong with this picture?

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