Durbin Second-Order Effects

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20 June 2011

Oliver Wyman Article Series Published by Celent


The Dodd-Frank Act and new debit card interchange regulations will have as profound an impact on other actors in the payments ecosystem as it does on debit issuers. The new Oliver Wyman article series explores such second order effects.

Most of the commentary on the recently announced Durbin regulations has focused on the direct loss of debit interchange revenue. This will be very significant. However, by reshuffling the relative costs between debit, credit and alternative payments, Durbin will have as profound an impact on other actors in the pay- ments ecosystem as it does on debit issuers. Oliver Wyman has issued a new article series, Durbin Second-Order Effects, to illuminate the impact of the regulations on these other parties.

There are six articles in the series, available to download for Celent clients. The articles explore the regulation effects on:

1. Credit card issuers

2. Merchant acquiring

3. Networks

4. Contactless and mobile payments

5. Internet payments

6. Payments innovation

For example, in the first article on credit cards, Oliver Wyman assert that the new rules create very strong incentives for merchants to select against credit cards and expect credit card interchange revenues to go down as well. Similarly, Oliver Wyman expect that the regulations will eliminate incentives for almost all new payment methods as the $0.12 cap creates a price ceiling under which most alternative methods can’t generate an adequate return.

So, does Durbin kill off payments innovation entirely? “No, but it will channel innovation into ideas that help merchants increase sales, namely leveraging information about customer behavior through their payments and encouraging loyalty,” says Andrew Dresner, an Oliver Wyman partner and author of the report. “This is the new battleground for payments innovation and where the smart money will head.”

Each article in the series is five to six pages long.