Durbin or Duhhh?!bin

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6 October 2011
Gareth Lodge
I’ve been following the Durbin debit card discussions with interest for years. As many of you will know, I believed that if you’ve been following regulation in other markets, Europe and Australia in particular, this was inevitable. And, following the script I laid out, banks have decided to recoup fees by introducing a monthly fee (Bank of America, JP Morgan and Wells Fargo). And the Senator concerned has responded in a shocked, spluttering way. By the way, I hope he responds in a similar “I can’t believe this would happen” way when the retailers fail to reduce prices like they said they would. All good. Can we move on already? Because I believe worse is actually to come. Much of the issue is not the level of fees per se, but the transparency and appropriateness. That is, being able to prove that the level of fee is based on the actual cost. This is problematic. A study I did in a previous role showed that none of the 38 global banks we interviewed could say with any accuracy what the P&L on their card business was. They had some broad views but that was about it. That’s because debit cards are so integrated into the deposit account, it then becomes very tricky to decide what should be included in the P&L. So, I think short-term, the fees are a good thing, at least for the banks. They will either recoup lost revenue or more price sensitive customers will leave, leaving the least sensitive behind (ie profitable), a point which many of my peers agree on to. However, longer term, I think it will herald a deep look at bank fees and charges. The comments from Durbin himself show a belief that banks are over-charging. Indeed, it would seem to show a misunderstanding about what a bank is (he seems shocked that they are operating as a business and charging for services rendered). The fact that other costly products remain free (checks in particular) will raise accusations that one set of fees cross-subsidise other products. That’s what triggered many regulatory investigations in Europe. And that’s what I believe will happen in the US. You have been warned!


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