Will debit only Interchange regulation back fire?

More evidence that the ill-conceived debit only Interchange regulation may back fire for small merchants this week comes from the MasterCard blog.

In a post, The Durbin Chickens Start Coming Home to Roost we find this quote “What banks’ shying away from debit rewards is likely to do is shift volume away from debit cards to credit cards for those who pay with plastic.” Of course as merchants well know, credit and reward credit Interchange is substantially higher than debit Interchange today.

In December 2010 when the Fed issued a proposal to set a price cap on debit card Interchange fees under new powers from the Dodd-Frank Act, we warned that “without a compelling financial incentive to develop debit that issuing resources will move away from this product line. Bank issuers are expected to focus on moving consumers back to unregulated credit cards, pouring creative into how to influence consumers to carry “charge cards” with more benefits.”

For small businesses, a balanced evaluation of Durbin’s government intervention will include unintended consequences like how they may be disadvantaged competing with mega retailers and how banks will react to make up for their lost Interchange revenue. Consider these 5 Small Business Concerns with Debit Interchange Regulation.

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