Why the Unbanked Are a Goldmine for Retailers, Pawn Shops and Payday Lenders


By Tim Chen

The unbanked are finally getting noticed: From Walmart and Target, to check cashing services and pawn shops, NetSpend and Green Dot to American Express, banks and non-banks alike are scrambling to attract these low-risk, highly lucrative potential customers. Even as rising checking account fees drive some out of the traditional banking system altogether, alternative financial services providers clamor for those that banks reject.

For banks, a perfect storm of low interest rates, cautious lending and regulatory changes rubbed most of the luster off of checking accounts. Usually, a bank can defray the cost of a checking account — estimated at more than $200 a year — by lending out the deposited funds and earning revenue off the interest spread.


Bankers Increasingly See Mobile as Key Element of Their Retail Strategies, American Banker Research Finds

But Regulation and Risk Management Will Remain the Big Drivers of IT Spending Decision-Making


 NEW YORK, NY, Feb 21, 2012 (MARKETWIRE via COMTEX) — Bankers increasingly see mobile technology as a must-have component of their retail offerings, but say that regulatory and risk-management concerns will dominate IT spending initiatives in 2012, according to a recent American Banker Research survey conducted in partnership with bank technology and payment systems specialists Tata Consultancy Services, TSYS, and Jack Henry and Associates.


How New Hampshire’s Proposed Swipe-Fee Cap Could Hurt Consumers

From: U.S. News

By Tim Chen

The highly contentious Durbin Amendment went into effect only four months ago, but its effects are already reverberating throughout the banking sphere. Most visibly, some banks are raising their checking account fees: Chase nixed its debit rewards program, while Bank of America and Citibank raised fees or minimum balance requirements.

But the Durbin aftershocks don’t end there. The rise of prepaid debit, the credit union groundswell, the growing number of unbanked Americans, and the ever-improving credit card offers can all, in part at least, be traced back to interchange regulation. But for all the sound and the fury, many merchants say their profits have stayed flat or even fallen.


Europe Regulation May Be in the Cards

From: Barron’s

There are expectations for action on debit and credit transactions.

Morgan Keegan

There are increasing expectations of a near-term regulatory action from the European Commission concerning Visa Europe Interchange rates for both debit and credit transactions.

This is a topic that has been brewing for some time, with the European Commission scrutinizing interchange rates on numerous occasions over the past 10 years. While the most recent comments from Joaquín Almunia (the European Commissioner responsible for competition) have only referred to Visa Europe, previous comments from the Commissioner indicate that both Visa Europe and MasterCard (ticker: MA) activities are likely under review.


Benefits of cap on debit card fees not expected to last

From: The Washington Post

By Odysseas Papadimitriou

The Durbin Amendment — the legislative impetus for the Federal Reserve capping debit card interchange fees — was positioned as a boon for small business.

Legislators believed that by limiting the fees banks could charge merchants for debit card transactions, they would effectively lower costs for merchants and maybe even bring about lower prices for consumers as well. But while the controversial nature of this law has been evident from the time it was passed in May 2010 to October 1, 2011, when a roughly 24-cent per transaction cap took effect, we finally have the perspective required to answer the question: Has the Durbin Amendment done anything to reduce the financial burden for small business owners and consumers?


Little Lenders Benefit From Debit-Card Rule

From: Wall Street Journal

by Robin Sidel

It isn’t every day an 11-branch bank in Iowa gets a financial leg up on J.P. Morgan Chase & Co., Wells Fargo & Co. and Citigroup Inc.

West Bank Inc. in West Des Moines is likely to collect more money than the nation’s biggest banks each time a customer uses a debit card. The reason: About 7,300 of the 7,436 U.S. banks are untouched by the Durbin amendment, part of the Dodd-Frank financial overhaul.


Credit, Debit, Prepaid Relationships in 2012- Are You Prepared?

From: Credit Union Times

Credit card portfolios have had a rough go at things the past couple of years. 

Even with all the media attention on credit union credit cards in 2010, they grew just 2% that year. The previous five-year trend was an annual average growth rate of 10% to 12%.

Several elements came together to slow credit union card growth. First, the impact of the CARD Act, followed by the economic issues, high unemployment and housing crisis, left many credit unions in ultra conservative positions with their lending if not hounded by regulations and auditors, especially in the area of unsecured credit card lending.


Brussels turns its sights on card fees

Editor’s Note:  Before European regulatory authorities enact new regulations setting price controls on interchange, they should learn from the US experience and recognize that: 1) price controls never protect consumers; and 2) a mandate that shifts card processing expenses from retailers to financial institutions will ultimately result in consumers picking up the tab.

From: Financial Times

By Alex Barker in Brussels

Brussels has launched a fresh assault on fees charged to process card transactions, arguing that new legislation may be needed to promote competition and reduce costs for consumers.


Retail Groups Sue Federal Reserve Over Debit-Fee Rules

From: Supermarket News

WASHINGTON — Three industry associations, including Food Marketing Institute, filed a lawsuit in federal court here last week saying the Federal Reserve failed to follow the requirements of last year’s sweeping financial reforms when it set a cap on debit-card interchange fees this year.

Penton Media - Supermarket News, Click Here!

“FMI’s members will suffer significant and irreparable monetary injury directly traceable to the Board’s misconstruction of the statute,” George Green, FMI general counsel, said in a statement. “The bottom line is that we are fighting back against a rule that ignores the clear language in the law and will put more money in the pockets of the big banks at the expense of retailers and their customers.”


In a First, Interchange Gained Federal Regulation – Card Steering Questions Pop Up Soon After

From: Credit Union Times

This year saw a regulation capping the interchange card issuers were able to earn on a debit card transaction come into effect for the first time in history.

Passed and signed into law in 2010, the legislation mandating the cap, colloquially known for its chief sponsor, Sen. Richard Durbin (D-Ill.), had been included relatively late in the process of drafting the Dodd-Frank package of financial industry regulatory reforms. Controversial from the start, the amendment mandated that debit card issuers of more than $10 million in assets would have to live under the cap while those under $10 million, including all but three credit unions, would be exempt from the cap.

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