Preparing Your Debit Card Program for What’s Next

In today’s environment, the proverb, “Hope for the best, prepare for the worst,” serves as a standard mantra for community banks. The regulatory landscape hurls new challenges, and community banks pivot, adjust, and act to ensure that, no matter the outcome, the best interests of their communities and customers remain the top priority.

Debit interchange under fire

Consider the latest hit on the payments space: the Federal Reserve Board’s proposal to update Regulation II, as proof. This amendment seeks to lower debit interchange by 30% for covered issuers (with at least $10 billion in assets). If this proposal moves forward one-third of covered issuers will not be able to cover costs, which will mean fewer affordable options in local communities.

ICBA continues to advocate for the proposal to be withdrawn and reproposed pending further data and study of its effects. We are hopeful that the Fed will consider the comments received and reconsider proposed updates.

Addressing unintended consequences

Given the widespread impact this shift could have, community banks have begun a thoughtful planning process. In a best-case scenario, the Federal Reserve pulls back for further assessment and review. Worst-case? Community banks will need to ready themselves for the cuts.

Why? Fraud levels have soared to all-time highs. Debit card skimming grew 96% year over year. In the first quarter of this year, losses have already reached $48.5 million. That growth in fraud translates to real dollars for community banks estimated at $4.41 for every dollar lost. And with attacks escalating, that number—already $1 higher than the previous report—will continue to rise.

Being prepared

While ICBA continues to seek a more reasonable approach to Reg II changes, ICBA Payments is working to help curb some of the potential pitfalls around program costs. For instance, our Fraud Loss Protection Plan (FLPP) has helped community banks limit their exposure to losses stemming from the fraudulent use of credit and debit cards. In fact, over the last five years, the program has returned $3.5 million in fraud losses.

And now this resource is available to all ICBA members (not just ICBA Payments clients). For more information on this program, visit the ICBA Payments website or reach out to the Card Risk team at [email protected].

On the horizon

And as always, we continue to monitor recent developments in the payments space (including the widely reported Visa and Mastercard $30 billion interchange settlement pending final approval) to determine how we can empower you with the resources to anticipate and respond to these market dynamics.

Because while the New York District Court still needs to issue approval of the settlement deal and a decision isn’t expected until late this year, its results will have lasting impacts.

No matter the outcome of these payment developments, ICBA and ICBA Payments will continue to work to ensure community banks operate on a level playing field. ICBA will continue its advocacy efforts, and ICBA Payments will support your best interests from a product perspective. This dual approach ensures that you have what you need to continue to serve and meet the needs of your customers as you have for years.