Fintech Nerds Unite!

I'm excited to announce that I'll be speaking at Fintech NerdCon 2025. The team reached out to me to speak at the event, and I said, "This might be the only way I'll go to Miami!"

#finfluencers #fintechnerd #nerdnerd

The Content Council is full of the industry's best-known influencers, including Simon Taylor, Alex Johnson, Jason Mikula, Julie VerHage Greenberg, Miguel Armaza, Cokie Hasiotis, Nik Milanovic, and Katie Perry.

I hope to see you in Miami from November 18 to 20th at the event that every fintech nerd has ever wanted to exist.

The Fed Takes Another Look at Debit Interchange

A new paper (PDF) from the Kansas City Fed digs deep into the debit card interchange landscape more than a decade after the Durbin Amendment took effect. For those of us who’ve followed this space closely, it’s no shock that these regulations haven’t done much for small merchants, and now we’ve got the data to prove it.

Let’s rewind to 2011 for a quick primer. Regulation II, which came out of Durbin, introduced three big changes:

1. A cap on debit interchange fees—but only for large issuers (over $10B in assets).
2. A ban on network exclusivity, forces issuers to enable at least two unaffiliated networks per card. (This ban wasn’t enforced in e-commerce until last year due to technology limitations for single-message networks.)
3. Routing freedom for merchants, letting them pick how transactions are processed.

The cap ($0.21 + 0.05% of the transaction value, with an extra penny if you had fraud tools) was a big win for large retailers. However, smaller debit issuers, which include volume on all the fast-growing fintech brands (like Chime, Current, or Cash App) are exempt and represent about 35% of debit volume. The idea was that increased routing competition would push down fees for exempt issuers too.

For Small Merchants, Not Much Changed

The paper tracks exempt debit interchange fees across 13 networks (3 dual-message like Visa/Mastercard and 10 single-message like STAR and NYCE) from 2011 to 2024. The focus was on four key merchant categories: grocery, general retail, gas stations, and quick-service restaurants. The analysis zeroed in on small merchants, who don’t qualify for volume discounts.

Out of the 13 networks:

• Only four (including Interlink, NYCE, and Jeanie) generally reduced fees in at least one merchant category.
• Five networks (including Discover’s Pulse) both raised and lowered fees, depending on the category.
• Two networks (ACCEL and STAR, both owned by Fiserv) increased fees across the board.
• Two networks (Mastercard and Maestro) made no changes at all.

What’s worse: Fee hikes were often much larger than reductions. Some increases hit +68 cents on a $40 transaction, while reductions maxed out at just 11 cents. A lot of those hikes were tied to “premium” interchange tiers (networks offering higher rates to issuers who commit to sending more volume their way). In other words, networks still know who they serve.

Why Didn’t Routing Pressure Work?

In theory, routing choice was supposed to create downward pressure on fees. But in practice, small merchants aren’t routing-savvy: Many use flat-rate pricing from their processors. If you’re a corner bakery on Square or Toast, you’re likely paying 2.6% + $0.10 no matter what. That model removes any incentive to route transactions over lower-cost networks because the cost is bundled and opaque.

Large merchants, by contrast, use interchange-plus pricing, where each fee is broken out, and every penny saved by steering volume matters. That asymmetry gives networks zero reasons to lower exempt interchange for small merchants, especially when they can still use high fees to lure issuers into preferred partnerships.

Single vs. Dual-Message Networks

Interestingly, there wasn’t a clear pattern between network type and fee movement. Both single- and dual-message networks were found across all four outcome categories (decreased, increased, unchanged, mixed). However, the broader takeaway is that even though single-message networks are more susceptible to merchant routing, they didn’t necessarily lower fees. Why? Because small merchants don’t route, so the competition doesn’t happen.

Let’s not forget: while dual-message networks like Visa and Mastercard were theoretically vulnerable to routing loss, issuers still push cardholders to run debit as “credit” (especially with contactless), keeping dual-message rails sticky.

The Fed Hints at What Comes Next

The paper concludes by suggesting that routing choice isn't enough to reduce small merchant costs. Other countries, like South Korea and Canada, have experimented with broader caps, either across the board or targeted at small merchants. (Fun fact: Canada doesn’t regulate interchange by law, but the Department of Finance got Visa and Mastercard to voluntarily lower credit card fees for small businesses.)

In October 2023, the Fed even proposed lowering the Reg II cap (to $0.144 + 0.04%, plus $0.013 for fraud), a move that wouldn’t help small merchants directly but could set a precedent.

The merchant coalitions push a narrative that regulating debit card interchange helps small merchants. This paper suggests that this is not true and that Regulation II is a regulation affecting primarily the largest merchants and banks alone.

Goodbye, Stand-Alone Zelle

Challenger banks across the U.S. have been cautiously planning for last week’s discontinuation of the stand-alone Zelle app. Zelle is a peer-to-peer real-time payment network operated by Early Warning Systems, which is owned by a consortium of the nation’s largest banks (Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo). Many challenger banks see up to one-third of the deposits onto their platform coming in via Zelle transfers.

The Zelle app is going the way of Zune and Zulily

The stand-alone Zelle app allowed most bank accounts to use Zelle by connecting your account via traditional ACH routing numbers with your phone number. Now, you can only use Zelle from a participating bank directly with Zelle built into the app. EWS says that this is because Zelle doesn’t need a stand-alone app anymore. I’m feeling more like a conspiracist about this, however. I think the EWS banks don’t want people using Zelle to fund challenger bank accounts. 

Part of Zelle’s success is its ubiquity. As they pull back on availability and introduce new transaction delays to limit fraud, I think they will push folks back to Cash App, Venmo, and PayPal.

Quick Notes

Deserve Launches CC Bank Cards

CC (Capital Community) Bank is a Utah-based institution with about $1 billion in assets and less than ten locations. Many smaller community banks like this don’t issue credit cards directly, but work in an agent banking relationship with a company like Elan Financial Services. In this case, CC Bank is issuing the cards directly using Deserve’s platform, marrying modern capabilities to an institution that has typically been stuck with legacy providers.

Deserve is a pioneering credit card program manager that has issued cards for fintech brands (via traditional sponsor banks like Celtic Bank, also of Utah) and for traditional banks (like its former partnership with Sallie Mae Bank). As far as I know, this relationship is a sign of a new type of banking customer.

The new partnership encompasses three new cards:

1. A co-branded card for the Utah Warriors Rugby team
2. The Peak Card, for consumers
3. The Summit card for small businesses

More vertical cards and somehow still no vertical stripes

These are decent cards with all three carrying no annual fee, while including Priority Pass lounge access. The two consumer cards are 1.5% cashback cards, with the Warriors card also including 5% cash back on Warriors tickets and merchandise. The small business card is a 2% cashback card.

Capital One - Discover Merger Moves Along

The New York Times reported that Capital One’s acquisition of Discover has cleared an important Justice Department hurdle. The DOJ informed regulations that it did not intend to block the merger for anti-competitive reasons. First announced in February in 2024, a bank merger of this size is bound to be a slow-moving process. I think this deal will be great for Capital One, but I rarely believe folks that say two large companies combining can be anything but negative for consumers. Oh, well.

CardsFTW

CardsFTW, released weekly on Wednesdays, offers insights and analysis on new credit and debit card industry products for consumers and providers. CardsFTW is authored and published by Matthew Goldman and the team at Totavi, a boutique consulting firm specializing in fintech product management & marketing. We bring real operational experience that varies from the earliest days of a startup to high-growth phases and public company leadership. Visit www.totavi.com to learn more.

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