Wednesday, June 29, 2011

Fed Doubles .12 Cent Debit Cap to .24 Cents...

After proposing a .12 cent debit fee, the Fed raised its proposed cap on interchange to 21 cents, plus 0.05 percent of the transaction amount and 1 cent to cover protecting against fraud.   The Fed said it will allow banks to charge a maximum of 24 cents per transaction, on average.  According to the Fed's December study, banks charge an average of 56 cents on debit card transactions that require a customer's signature for authorization, compared to 23 cents for the more secure PIN payments.  Here's the Federal Reserve's Press Release:
Release Date: June 29, 2011
For immediate release

The Federal Reserve Board on Wednesday issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II (Debit Card Interchange Fees and Routing), is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Debit card interchange fees are established by payment card networks and ultimately paid by merchants to debit card issuers for each electronic debit transaction. As required by the statute, the final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees is effective on October 1, 2011.

The Board also approved on Wednesday an interim final rule that allows for an upward adjustment of no more than 1 cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule. If an issuer meets these standards and wishes to receive the adjustment, it must certify its eligibility to receive the adjustment to the payment card networks in which it participates. Comments on the interim final rule are due by September 30, 2011. The fraud-prevention adjustment is effective on October 1, 2011, concurrent with the debit card interchange fee limits. The Board will re-evaluate this adjustment in light of feedback received during this comment period.

When combined with the maximum permissible interchange fee under the interchange fee standards, a covered issuer eligible for the fraud-prevention adjustment could receive an interchange fee of up to approximately 24 cents for the average debit card transaction, which is valued at $38.

In accordance with the statute, issuers that, together with their affiliates, have assets of less than $10 billion are exempt from the debit card interchange fee standards. To assist payment card networks in determining which of the issuers are subject to the debit card interchange fee standards, the Board plans to publish by mid-July and annually thereafter lists of institutions that are above and below the small issuer exemption asset threshold. Also, the Board plans to annually survey the networks and publish a list of the average interchange transaction fees each network provides to its covered and exempt issuers. This information should enable issuers, including small issuers, to more readily compare the interchange revenue they would receive from each network.

The final rule prohibits all issuers and networks from restricting the number of networks over which electronic debit transactions may be processed to less than two unaffiliated networks. The effective date for the network exclusivity prohibition is April 1, 2012, with respect to issuers, and October 1, 2011, with respect to payment card networks. Issuers of certain health-related and other benefit cards and general-use prepaid cards have a delayed effective date of April 1, 2013, or later in certain circumstances.

Issuers and networks are also prohibited from inhibiting a merchant's ability to direct the routing of the electronic debit transaction over any network that the issuer has enabled to process them. The merchant routing provisions are effective on October 1, 2011.

The Board's notices for the final rule and the interim final rule that will be published in theFederal Register are attached.

Statement by Chairman Ben S. Bernanke

Statement by Vice Chair Janet L. Yellen

Interim final rule (114 KB PDF)

Final rule (742 KB PDF)2009 Interchange Revenue, Covered Issuer Cost, and Covered Issuer and Merchant Fraud Loss Related to Debit Card Transactions (134 KB)

For media inquiries, call 202-452-2955.
2011 Banking and Consumer Regulatory Policy

Mobile Money Forecast : $1 Trillion by 2015

Yankee Group Sees Global Mobile Transactions Exceeding $1 Trillion by 2015

Firm launches Mobile Money StrategiesTM to help industry players capitalize on the emerging opportunity.
BOSTON--(BUSINESS WIRE)--Yankee Group’s latest Mobile Money Forecast finds the value of global mobile transactions will grow from $241 billion in 2011 to more than $1 trillion by 2015, a CAGR of 56 percent. That growth, coupled with 500 million mobile banking users around the world in the same time frame, presents an enormous opportunity for both new and established players in the mobile money ecosystem. To help companies capitalize on this rapidly evolving opportunity, Yankee Group unveiled an innovative new service today called Mobile Money StrategiesTM.
 Yankee Group
“We are on the cusp of a burgeoning mobile money marketplace, one where first movers will gain a significant strategic advantage”

“We are on the cusp of a burgeoning mobile money marketplace, one where first movers will gain a significant strategic advantage,” said Gigi Wang, chief research officer at Yankee Group. “With consumers flocking to all things mobile, Mobile Money Strategies delivers the market intelligence and insights needed to profit from this revolution.”
Mobile Money Strategies is designed specifically to help retail banks, payment networks, mobile operators and other mobile money players implement, market and monetize successful mobile money strategies. It puts clients on the inside track of the mobile banking, mobile commerce, mobile coupon and mobile payment sectors and offers key insights into current and future mobile money adoption trends. The new service includes:
  • Actionable written research
  • Survey data showcasing consumer attitudes and behaviors
  • Market forecast data
  • Analyst insights via webinars and market perspectives
  • Focused executive events and peer exchange opportunities
Subscribers gain access to the latest Yankee Group Mobile Money Forecast and Survey findings, including:
  • Near field communications (NFC) is taking off. NFC-enabled phones will grow from just 7 million in 2011 to 203 million in 2015, a CAGR of 208 percent.
  • EMEA is the mobile money hot spot. In 2011, EMEA accounts for 41 percent of mobile transactions value, while North America accounts for 35 percent, Asia-Pacific 22 percent and Latin America just 1 percent.
  • Users are readily adopting mobile banking. Currently, 27 percent of all survey respondents use mobile banking—far more than use m-commerce (13 percent), mobile coupons (11 percent) and mobile payments (9 percent).
For more information on Mobile Money Strategies or to access a complimentary Mobile Money data snapshot, go to:
About Yankee Group
The people of Yankee Group are the global connectivity experts—the leading source of insight and counsel trusted by builders, operators and drivers of connectivity solutions for 40 years. With headquarters in Boston and London, Yankee Group has a global presence, including operations in the Middle East, Africa, Latin America and Asia-Pacific. Visit


Yankee Group communications
Ashlee Clevenger, +1-617-598-7268

At A Glance

Yankee Group
Source: via Business Wire
Updated 01/20/2006 by company

Federal Reserve Memo and Full Length Report on Debit Regulations

June 29, 2011

The Federal Reserve has just made public its official plan for implementing debit card swipe fee reform as mandated by the Durbin Amendment. The full PDF of the regulations is available on

Diners Club International® Ltd. and Russian Standard Bank Partner to Form New Franchise in Russia

RIVERWOODS, Ill. & MOSCOW--(BUSINESS WIRE)--Diners Club International® Ltd., a business unit of Discover Financial Services (NYSE: DFS), and Russian Standard Bank (RSB), a leading consumer lender in Russia, today announced an agreement to form a new Diners Club International franchise in Russia. RSB will assume all responsibility for the Diners Club brand and business in Russia and Ukraine in issuing and acquiring.
“We feel strongly that partnering with a reputable financial institution such as Russian Standard Bank, with their wealth of experience in both issuing and acquiring, will help us meet our aggressive growth goals in Russia.”
Russian Standard Bank is the largest credit card issuer in Russia with over 150 branches, 30 million customers and a strong reputation for innovation.
“This is the start of a great partnership and we are excited to be able to bring Diners Club to Russian customers. Our relationship with Diners Club International provides a unique offer to our merchant partners in our acquiring business. We look forward to working with our merchant partners to build the brand in the region,” said Dmitry Levin, Chairman of RSB.
As a globally recognized brand, Diners Club International is accepted in more than 185 countries and territories, millions of merchant locations and provides access to over 800,000 ATMs. The company offers best-in-class features and benefits and a network of unique customer and merchant services.
“The Russian and Ukrainian markets represent a great opportunity for a premium global payments brand like Diners Club,” said Rajive Chadha, President of Diners Club International. “We feel strongly that partnering with a reputable financial institution such as Russian Standard Bank, with their wealth of experience in both issuing and acquiring, will help us meet our aggressive growth goals in Russia.”
About Diners Club International
Diners Club International is owned by Discover Financial Services (NYSE: DFS), a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Established in 1950, Diners Club International became the first multi-purpose charge card in the world, launching a financial revolution in how consumers and companies pay for products and services. Today, Diners Club is a globally recognized brand serving the payment needs of select and affluent consumers, offering access to more than 400 airport lounges worldwide, and providing corporations and small business owners with a complete array of expense management solutions. With acceptance in more than 185 countries and territories, millions of merchant locations and access to over 800,000 cash access locations and ATMs, Diners Club is uniquely qualified to serve its cardmembers all over the world. For more information, visit
About Discover
Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America's cash rewards pioneer, and offers personal and student loans, online savings accounts, certificates of deposit and money market accounts through its Discover Bank subsidiary. Its payment businesses consist of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories. For more information, visit
About Russian Standard Bank
Russian Standard Bank was founded in 1999. Currently, Russian Standard Bank occupies a leading position in consumer lending. Within ten years, the Bank has created new standards of consumption in Russia. With its consumer lending programs, the Bank has attracted more than 30 million customers, and the volume of credit provided has exceeded 30 billion US dollars. During the last three years, Russian Standard Bank issued more than 30 million bank cards. In addition to credit and savings products, the Bank offers settlement products and services, namely: current accounts, payments and transfers and remote service channels. The Bank also focuses on innovative and technological services, providing Internet banking and Mobile banking services. Since 2005, the Bank has been issuing American Express Cards and acquiring merchants on to the American Express network in Russia. More detailed information is available at


Diners Club International
Laura Gingiss
Russian Standard Bank
Artyom Lebedev
Office: + 7 495 797 84 20
Cell: + 7 985 997 18 04

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Bid to Block Debit Cap Turned Aside by U.S. Appeals Court

Unanimous Ruling Upholds April Debit Cap Decision 
(from Bloomberg on 6- 29-2011)

TCF Financial Corp.(TCB) failed to persuade a U.S. appeals court to block a federal regulation capping the fees the biggest U.S. banks can get from retailers for processing debit-card transactions....

Fed May Loosen the Debit Card Swipe Fee Rules to Help Banks

 Bank lobby says Fed has flexibility to limit cuts to fees they charge 
 (from MarketWatch on 6-29-2011) 
By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — The Federal Reserve may provide some moderate relief to banks when it votes Wednesday afternoon to adopt a controversial debit-card rule that is set to shift billions of dollars in revenue from financial institutions to merchants.
read more»

Norton Warns About Lack of Smartphone Security

Norton Stresses On Smartphone And Tablet Security
(from IT Proportal at 29-6-2011)

Smartphone and tablet owners have been advised to take data security more seriously and install latest security software in their devices. According to tech website Code Stone, antivirus software developer Norton has encouraged mobile phone users for both personal and business purposes to take security of their devices very seriously. Con Mallon, director of regional product marketing at Norton stated that so far only 163 vulnerabilities have been noted in the last one year in comparison to 6,500 vulnerabilities for Microsoft’s operating system Windows and Apple’s more» operating system,... 

gotoBilling, Inc. Joins the Secure Vault Payments Network

Universal Payment Platform Adds Another Alternative Payment Option to its Merchant Customers

BOZEMAN, Mont.--(BUSINESS WIRE)--gotoBilling, Inc. announced today they will join the Secure Vault Payments® network and offer Secure Vault Payments through their resale partners to businesses throughout the United States in July.“By joining the Secure Vault Payments network, gotoBilling is able to provide its merchants with a lower cost and guaranteed alternative to credit card transactions”
Secure Vault Payments is a safe, secure and private online payment network developed by NACHA — The Electronic Payments Association® andeWise, a payments and online financial management solutions provider.
“Our connection to Secure Vault Payments complements our company’s focus on the advanced payment networks. This connection enhances a merchant’s payment options at lower costs than traditional methods which in this current economic environment creates immeasurable value to any business,” states Steve Roderick, CEO, gotoBilling, Inc.
The Secure Vault Payments (SVP) network links consumers, financial institutions, merchants and billers, providing value to all stakeholders in the payment chain. It gives financial institutions the only online payment option that provides real-time authorization of funds and guaranteed payments for ACH transactions at costs typically lower than traditional and other alternative payment methods. It is also the only payment option that offers consumers online payment choice without sharing any personal account information.
“By joining the Secure Vault Payments network, gotoBilling is able to provide its merchants with a lower cost and guaranteed alternative to credit card transactions,” said Richard Brierley-Jones, Senior Vice President of eWise. “Over time, we will enable businesses to connect with every bank consumer in the U.S. and give them the flexibility to make payments directly from their bank account.”
About gotoBilling
gotoBilling is an enhanced payment platform that provides processing versatility to professional and service related merchants. gotoBilling provides business users with a complete set of billing management tools designed to improve efficiencies and increased cash flow. gotoBilling users range in size from one person concerns to multi-national corporations. For the past decade gotoBilling has focused completely on the user experience and billing functionality and is proud to present the most complete, advanced and user-friendly interface available.
gotoBilling continues to enhance the platform with features that support a merchant’s payment management process. gotoBilling places a strong focus on providing added value coupled with the highest level of support for its end users. gotoBilling is headquartered in Bozeman, Montana. Development and support for the application is provided by gotoBilling employees located in Montana, U.S.A. by the same people who developed and continue to maintain and enhance the platform.
Secure Vault Payments® (SVP)
Secure Vault Payments is a safe, secure and private online payment network developed by NACHA — The Electronic Payments Association® and eWise, a payments and online financial management solutions provider. Secure Vault Payments enables consumers to initiate private and secure payments for purchases and bill payments through their financial institutions’ online banking platforms, using the ACH Network and eWise’s Online Banking ePayments technology. Financial institutions authenticate consumers and provide businesses with real-time authorization and confirmation of payment (ACH credit). To learn more, visit
eWise is partnering with NACHA to provide the Secure Vault Payments network, utilizing the eWise Online Banking ePayments (OBeP) technology and account management services. eWise is an online payment and personal financial management solutions provider with a reputation for providing innovative solutions that make transacting online easier and more secure. eWise offices in US, UK, China and Australia support some of the world’s top 50 financial institutions with solutions delivering outstanding, proven ROI for its customers and a better online experience for millions of end-users worldwide. For more information, visit


104 West Partners
Johanna Erickson, 720-407-6077

Kleiner Perkins Investment Pegs Square at $1 Billion

Kleiner Perkins Caufield & Byers (KPCB) is a major Sand Hill Road venture capital firm, one of the most widely known in Silicon Valley.


A venture-capital giant is leading a group of investors buying a stake in Square Inc. that pegs the start-up's value at more than $1 billion, even as it scrambles to fend off larger rivals in the fledgling marketplace for mobile-device payments.

The $100 million investment in Square by a group led by Kleiner Perkins Caufield & Byers, to be announced as early as Wednesday, quadruples the value of an eight-month-old company facing competitive pressure from Google Inc., Intuit Inc. and eBay Inc.'s PayPal.

At stake are billions of dollars in the rapidly evolving payments industry, as well as the credibility

Read more:

From Venture Beat: It’s official. Jack Dorsey’s Square has joined the billion dollar valuation club. The mobile payments startup closed a $100 million series C led by Kleiner Perkins, a story we broke a few weeks ago. The new round values Square above $1 billion.

Square image
Location:San Francisco , California, United States
Founded:February, 2009
Square is a revolutionary service that enables anyone to accept credit cards anywhere. Square offers an easy to use, free credit card reader that plugs into a phone or iPad. It’s simple to sign up. There is no extra equipment, complicated contracts,… Learn More
Enhanced by Zemanta, Visa Inc. Launch “Kiva City” in Support of U.S. Small Businesses

New Study Ranks Cities Where Program Can Have the Most Impact
CHICAGO--(BUSINESS WIRE), the world's first personal microlending website, and Visa Inc. (NYSE: V), a global leader in payments, today announced Kiva City, a new program that will extend small business access to microloans in U.S. cities with the greatest need. The Kiva City program is the latest component of Visa’s partnership with Kiva to help U.S. small businesses by expanding their awareness and understanding of microfinance opportunities. The Kiva City program, kicking off in Detroit, was launched as part of a commitment announced today by President Bill Clinton on stage at the Clinton Global Initiative America conference in Chicago.
“With the visibility, community group connections and committed loan funds provided by Kiva, we believe Kiva City and its launch in Detroit will serve as a model for bringing solutions to more cities across America.”
Kiva City aims to spur job growth and economic recovery by connecting Kiva’s global network of 592,000 individual lenders with the owners of small businesses throughout the country. With very few microfinance institutions operating at scale in the U.S., Kiva City helps address this challenge by tapping the power of local communities to come together and bring Kiva to their city, particularly those whose small business communities have been most impacted by the recent economic downturn. According to a new study by the Economist Intelligence Unit, commissioned by Kiva and Visa, 20 of the nation’s 50 largest metropolitan statistical areas have lost at least one percent of their small businesses from 2006 to 2008. This represents approximately 15,000 businesses.
The Kiva City program launches today in Detroit, which ranked fifth in the study’s list of the top U.S. small business trouble spots. The microloans, made possible through Kiva’s lending partnership with microlender ACCION USA, a member of the ACCION Network in the U.S., will offer Detroit area small businesses an additional option for accessing capital that can be used to fund operations, ranging from purchasing equipment and paying rent, to hiring and retaining employees, to offering promotions.
“Since launching in the U.S. two years ago, we have worked with our partners to replicate our successful global model, empowering each and every American to help our economy by adding as little as $25 to a small business owner’s loan,” said Premal Shah, co-founder of “But as our study shows, the needs in the U.S. are widespread and many regions simply don’t have microfinance institutions operating at scale. Now, spurred by Visa’s commitment to small business, we are able to expand our reach and, as a result, open new avenues of capital for small business owners across the country.”
How the Program Works
With Kiva City, civic leaders and community members alike have the opportunity to effect meaningful change. The new program extends Kiva’s Internet-based lending model to underserved communities throughout the country—even where microfinance institutions have yet to establish local branches. Working in concert with Kiva and microlending partners, communities join forces and commit the resources to conduct on-the-ground outreach to small business owners to support the three components of microlending: sourcing the businesses to apply for microloans, administering the loans and funding the loans. The average size of Kiva’s field partner loans in the U.S. is $7,000.
“ACCION USA is the vital link between Kiva lenders, communities and the small business owners in Detroit who need our help,” said Gina Harman, President and CEO of ACCION Network in the U.S. “With the visibility, community group connections and committed loan funds provided by Kiva, we believe Kiva City and its launch in Detroit will serve as a model for bringing solutions to more cities across America.”
Detroit became the first Kiva City in partnership with Michigan Corps, a social network of local and global Michiganders committed to positive change in their home state. “Through our partnership with Kiva and ACCION USA, we’ve been able to bring the tools of microfinance to our neighborhood businesses so that they can invest in their growth. Through local networking events, church gatherings, and neighborhood BBQs, we have built an engaged community of small business owners and lenders alike. Detroit is proud to be the pioneer of the Kiva City model.” said Anuja Jaitly, co-founder and executive director of Michigan Corps.
U.S. Small Business Trouble Spots
The Kiva and Visa Study of Small Business Trouble Spots looked at small business trends in the 50 largest metropolitan areas to identify the degree of small business stress there. Some of the more heavily affected regions, like Detroit, also experienced decreases in their employment levels by more than five percent.
The ten regions that experienced the greatest losses of small businesses were:
  • Cleveland-Elyria-Mentor, Ohio
  • Miami-Fort Lauderdale-Pompano Beach, Florida
  • Pittsburgh, Pennsylvania
  • Columbus, Ohio
  • Detroit-Warren-Livonia, Michigan
  • Orlando-Kissimmee, Florida
  • Minneapolis-St. Paul-Bloomington, Minnesota/Wisconsin
  • Kansas City, Missouri/Kansas
  • Providence-New Bedford-Fall River, Rhode Island/Massachusetts
  • Milwaukee-Waukesha-West Allis, Wisconsin
“Our work, which includes providing products, services and resources to the small business community, confirms that while the economic challenges that small businesses have faced recently are very real, small business owners are resilient and optimistic,” said William M. Sheedy, Group President, Americas, Visa. “We are pleased to continue to work in partnership with organizations like Kiva to help serve small business owners and spur job creation.”
To follow the announcement live from CGI America visit
To see how your city ranked and download the EIU study, visit To learn more about how to bring Kiva City to your town or about the Kiva partnership with Visa, visit To learn more about Visa’s small business community and free resources, visit
About is the world's first personal microlending website, empowering individuals to lend to an entrepreneur across the globe. Founded in 2005,'s mission is to connect people, through lending, to alleviate poverty. Over 595,000 people have loaned more than $223 million to 577,000 entrepreneurs in 59 countries. is headquartered in San Francisco.
About Visa
Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable digital currency. Underpinning digital currency is one of the world’s most advanced processing networks—VisaNet—that is capable of handling more than 20,000 transaction messages a second, with fraud protection for consumers and guaranteed payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, ahead of time with prepaid or later with credit products. For more information,
About Michigan Corps
Michigan Corps is a social network of local and global Michiganders committed to change in our home state. Founded in Detroit in 2010, Michigan Corps builds online and offline community among Michiganders everywhere (i.e. "Corps Members") while also launching innovative education and entrepreneurship projects across the state. For more, visit
About ACCION USA and ACCION Network in the U.S
ACCION USA is a non-profit organization leader in U.S. microfinance dedicated to providing microentrepreneurs and individuals on the economic margin with the crucial chance to access capital and develop greater financial literacy. ACCION USA loans range from $500-$25,000 and are offered nationwide via
ACCION USA is a member of the ACCION Network in the U.S. is the largest microfinance network in the United States, having lent in aggregate over $290 million in over 40,000 loans to small businesses since 1991. Through their small business lending and financial education programs, the Network members have fostered job creation, increases in family income, and lasting economic vibrancy for small business owners and their communities nationwide. Members of the ACCION Network include ACCION Chicago, ACCION New Mexico, Arizona & Colorado, ACCION San Diego, ACCION Texas-Louisiana, and ACCION USA.
About the Clinton Global Initiative (CGI) and CGI America
CGI America is a new Clinton Global Initiative (CGI) event focused on developing ideas for fostering economic recovery in the U.S. Established in 2005 by President Bill Clinton, CGI convenes global leaders to devise and implement innovative solutions to some of the world’s most pressing challenges. Since 2005, CGI Annual Meetings have brought together nearly 150 current and former heads of state, 18 Nobel Prize laureates, hundreds of leading CEOs, heads of foundations, major philanthropists, directors of the most effective nongovernmental organizations, and prominent members of the media. These CGI members have made nearly 2,000 commitments, which have already improved the lives of 300 million people in more than 180 countries. When fully funded and implemented, these commitments will be valued in excess of $63 billion. The 2011 Annual Meeting will take place Sept. 19-22 in New York City. The CGI community also includes CGI U, which hosts an annual meeting for undergraduate and graduate students, and CGI Lead, which engages a select group of young CGI members for leadership development and collective commitment-making. For more information on CGI America, visit For more information on the Clinton Global Initiative, visit

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Portals and Rails: What are you signing away with a signature instead of a PIN on card transactions?

Portals and Rails, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Portals and Rails and look forward to collaborating with you.

What are you signing away with a signature instead of a PIN on card transactions?

Recent years have witnessed the commercial banking industry making some surprising risk management decisions. For instance, many financial institutions encourage their customers to choose the credit/signature option of their debit cards rather than the debit option. But the credit option is more vulnerable to fraud, so ultimately is more costly to the industry. In addition, signature debit transactions are processed through the credit card networks, which means the banks earn the higher interchange fee that comes from credit transactions as opposed to debit transactions.
The point of this discussion is not to look at the anticipated effect of the Durbin amendment on interchange practices, but instead to focus on the moral hazard presented by these practices in the context of our nation’s retail payment systems. The reason that signature debit carries a higher interchange fee is that it is less secure than PIN debit transactions. In a recent study by the Federal Reserve Bank of Minneapolis, financial institutions reported that signature debit fraud attempts eclipse fraud with other payment types. The report also says that debit cards along with checks are the payment types most often attacked by fraud schemes, and as a result sustain the highest losses.
Payment types with hihgest number of fraud attempts by % of respondents
Source: 2010 Payments Fraud Survey: Summary of Results,
The Federal Reserve Bank of Minneapolis
However, the study also reported that most financial institutions and other organizations report that actual fraud losses as a percent of their annual revenues are relatively small, at less than 1 percent. This information sheds light on the risk-versus-return decision-making rationale.
As the incidence of payment card fraud in general is on the rise, it is time to take a proactive view of the risk management practices for debit card programs. While persuading customers to process debit card payments on card networks may be more profitable in the short run, the industry may realize an increase in fraud and risk in the retail payments system as a result.
Cindy MerrittBy Cindy Merritt, assistant director of the Retail Payments Risk Forum

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