Payments CEOs pressed for their takes on the Federal Reserve Board’s proposal to lower a debit interchange fee cap have offered clashing views of the regulatory move.
The Fed last week proposed a rule change that would lower a cap on the interchange fee that debit card issuers can charge merchants to process a transaction.
It would lower the base debit fee rate by about a third to 14.4 cents from 21 cents, and would adjust amounts bank card issuers can charge to pay for fraud costs and to offset fraud losses, according to an Oct. 18 Fed memo on the proposal. The cap hasn’t been changed since it was set in 2011.
Mastercard CEO Michael Miebach last week pointed to industry trade groups’ concern expressed in a letter sent to Fed Chair Jerome Powell, arguing that price caps are driving market distortion.
“This is not a good thing,” the CEO of the No. 2 card network said during the company’s Oct. 26 third-quarter earnings conference call. “It's not a good thing for the consumer. Yet again, not a good thing for merchants who run reward programs and so forth. So we’ll have to see where it goes.”
He noted that “interchange is a balancing mechanism for the industry,” and “does not directly affect our P&L.”
Processor-acquirer Global Payments and larger rivals Fiserv and Fidelity National Information Services were flagged as potential beneficiaries in a recent note from Baird Equity Research analysts on the Fed’s proposal.
Acquirers would tend to benefit even if banks must lower their interchange fees because they may still be able to keep their pricing higher, though that tailwind can still be eroded by competition, Baird analysts wrote in an Oct. 25 note. Many small and mid-sized businesses, in particular, "are priced on a bundled basis, and acquirers pay the network and interchange fees out of the bundled price.”
Asked by an analyst Tuesday about the company’s potential gain from the Fed lowering debit interchange, Global Payments CEO Cameron Bready said the move would be positive for the company.
“Anytime the cost of acceptance goes down for our customers, it’s a good thing for our business,” Bready said during the company’s third-quarter earnings conference call.
Much of Global Payments’ portfolio is interchange-plus-plus pricing, “where those benefits would immediately get passed on to merchant customers,” he said. That pricing model refers to interchange plus assessment fees and processor fees.
In areas of the business with a different approach to pricing, there may be short-term benefit, he said. However, “what we see is that the benefit to interchange would ultimately get competed away in the market over some period of time,” Bready said.
