Well, OK, what does planning for reduced interchange mean in a practical example? Let’s look at a specific case: a bank that is thinking of a launching a prepaid card. I’ve been in a few meetings about this kind of thing recently so I think it a useful case study.
According to a study of branded prepaid card programs by Boston-based Aite Group LLC released early this year, some 53% of payroll card transactions occur at the point of sale, followed by 40% at ATMs. Aite estimated that payroll card programs generate 50% of their revenues from interchange, 30% from float, 10% from fees, and 10% from breakage.[From National ACH: Better Business Bureau Rolls Out Payroll Card]
So a reduction in interchange means a reduction in the single largest source of income for the product, and can therefore easily make or break the business case. And note that interchange doesn’t have to reduce much to make the product marginal. It’s not clear to me that either the politicians or the retailers understand how sensitive some new opportunities are to interchange calculations, so a reduction in interchange will inevitably mean a reduction in innovation. If that’s the goal, fine.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]