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Boston Consulting Group released a report yesterday that shows that Washington’s regulatory fervor of the last two years will cost the electronic payments industry $25 billion a year.
There are three takeaways from this according to BCG:
- Lower income consumers, the ones these regulations were theoretically designed to protect, are the ones most likely to be hurt by the unintended consequences of these regulations
- Free checking is about to join account-opening toasters and Christmas Clubs in the banking landfill
- Banks will be driven at a faster pace to the greener pastures of mobile banking (until the regulators tail them there)
BCG claims that the $25 billion represents nearly 30% of what U.S. card issuers collect in card transaction fees. This haircut (scalping, really) comes in three swift passes:
The update of Regulation E requiring cardholders’ permission to charge overdraft fees
The disclosures on rates and fees in the CARD Act
The Durbin Interchange Amendment which for the first time institutes price controls on debit card transaction fees.
I don’t know one banker, one card issuer or payment processor who doesn’t want this industry to be secure, safe and convenient for consumers. But when government regulation destroys a third of an industry segment’s revenue, we’ve entered uncharted waters.
The American author and screenwriter Raymond Chandler once said that the problem with revision is that you more often than not end up destroying that which was good without having any noticeable effect on that which was bad.
It appears that’s what happened in the first go-around of this regulatory push. The motivation to innovate, a wide portfolio of products and a vibrant industry segment have been damaged without any indication of a positive outcome for consumers.
Since the damage has already been done, might be time to look at that revision.
One has to recall that all of us have been living in the post-Reagan/Thatcher era in which regulation was seen at basis as bad, and that era was only one swing of a pendulum that continues to swing. So we should deal with this just as we deal with other changes to the business environment.
ReplyDeleteMoreover, some of the wealth (e.g. opt-out OD fees) that BCG forecast to disappear was tainted from the start and thus should probably not have been done (ask it increased risk of scrutiny) or never have been counted upon as long term. The industry did both, and no must deal with the result.