The Endless Battle Over Interchange

I do not believe that the U.S. government should be in the business of regulating interchange. 

More proof of this comes this past week, with the Federal Reserve Bank losing a court case brought by retailers over the Durbin Amendment of the Dodd-Frank bill over how to regulate interchange from covered debit card issuers (those with greater than $10B in assets).

As covered by Evan Weinberger in Bloomberg Law, the court found that the Fed exceeded its statutory authority by including fraud-prevention and other costs in the interchange calculation. While District Judge Daniel Traynor found the rule to be invalid, he stayed his decision, because it would create a huge mess.

I really enjoyed reading the court order, in large part because the judge seems annoyed at how complex payments are and what the industry (we) call things. There are a lot of things in quotation marks. My favorite line is this one:

Approximately seven months after the Proposed Rule was published, on July 20, 2011, the Board issued its final rule, titled “Regulation II” (pronounced “eye-eye”).

It’s true; we say “reg eye-eye” but why is this in the order? Seems snarky. I appreciate it.

This case is all about commas and grammar, as many legal cases are. The core point is §1693o-2(a)(2)(A) that the Federal Reserve Board of Governors shall:

(B) Distinguish between - -

(i) the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction, which  cost shall be considered under paragraph (2); and

(ii) other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under paragraph (2)

Is “other costs” not specific costs that are general (e.g., not on a transactional basis) or other costs that are not listed (e.g., in this case the cost of fraud management, which isn’t listed in (i)?

Lest your eyes glaze over, I will stop here, as the court goes on at some length on which vs. that.

The end result is: the Durbin interchange fee is set too high; the Fed set it incorrectly; merchants will get to pay even less.

I maintain:

1. There should be no regulation here
2. The government shouldn’t decide that some banks get to charge more and others less
3. Merchants who don’t want to pay for card processing can simply not accept cards

There is another interesting question here for merchants, which is value vs. cost. Durbin sets fees at the banks’ costs. However, you get to price goods and services based on their value. Is it worth paying 1.15% to accept a debit card vs. bad checks or cash? That is a value question and different merchants will feel differently. I’ve written about this time and time again, and, as publisher of “Cards FOR THE WIN,” it’s quite obvious which side I am on.

Can someone just roll back Durbin? Maybe we can make debit cards great again.

New Card Round-up

There were a lot of new cards announced in the last week. 

Wix

What is it with card images showing the Visa logo wrong?

Website platform Wix launched a new checking product, that includes cash management and an attached Visa business debit card. powered by Unit’s embedded finance platform. The Wix Debit card is issued by Lincoln Savings Bank.

Fetch

Two fetching card designs

Fetch, a rewards app and shopping cashback program, officially launched its new American Express card, powered by Imprint and issued by First Electronic Bank. (I mentioned the cards’ presence on the web at large last week.) Amex is on a tear, with this launch following Coinbase and Rakuten earlier this year.

Tilt

I have qualms about these Visa logos. Also, the EMV chip. Also, Tilt Motion sounds like a carnival ride.

Empower Finance rebranded to Tilt and launched a new credit card line-up. This follows Empower’s purchase of the Petal card last year. Tilt announced three cards, which are issued by Web Bank:

1. Tilt Essentials - no annual fee and 3% cashback on gas and grocery, APR of 29.99%
2. Tilt Motion - no annual fee, variable APR of 28.99%–33.99%
3. Tilt Engage - $59 annual fee, variable APR of 28.99%–33.99%

Confused? I am.

According to Tilt:

Tilt Cards are for every type of credit-builder. The Tilt Engage and Motion Cards are great for people who are new to credit or rebuilding their scores. The Tilt Essentials Card is great for everyday expenses and earning bonus cash back.

So, I think that what you actually want is Essentials if you can get offered the card, even though it sounds like Engage is the best card.

BMO Escape

This follows brand standards, but still not a vertical card fan

BMO, the Canadian bank with a big U.S. expansion underway, announced a new high-end card: The BMO Escape Credit Card. This metal card earns 4 points on airfare and dining; 3 points on hotels, tours, travel agencies, and cruises; 2 points on rideshare, taxi, and car rentals; and 1 point everywhere else, with a $3,000 limit per category per quarter. Like other travel cards, you get a Global Entry/TSA PreCheck credit, lounge access, and a hotel credit (although it’s $20 per month on $200 in spend, instead of annual). Unlike other travel cards, the earning structure is more complex (vs. a straight 3x on travel).

The card carries a $150 annual fee and has a 45,000 point bonus on $5,000 of spend within the first 3 months. 

Credit Sesame

Credit Sesame is migrating its Sesame Cash card account to Green Dot. The card is currently issued by CFSB and is not cheap ($9.99 per month, unless you deposit $500 or spend $1,000 each month). Details on the new card are scarce (which is why there's no photo).

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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