As Congress looks at tightening restrictions on fees merchants pay when customers use debit cards, it could create what one analyst calls “head winds” for Columbus-based electronic payment processor TSYS.
“Broadly speaking, any kind of regulation creates a disincentive,” said JMP Securities Managing Director of Equity Research David Scharf.
The amendment that cleared the Senate last week is a loss for card payment networks like Visa and MasterCard as well as major banks that issue cards.
But even if the amendment becomes law, it’s unclear whether savings from reductions in debit card swipe fees would trickle down to consumers in the form of lower prices, or would largely be kept by merchants.
Swipe fees, formally called interchange fees, are charges that a merchant’s bank pays the issuer of a customer’s card for each electronic transaction.
TSYS issued a statement in response to the legislation.
“No one questions the benefits to banks, consumers and merchants, of the broad availability of payment cards and their universal acceptance — cards make money for banks, who use those profits to make loans; cards also provide convenience and utility to consumers; and the universal acceptance of payment cards enables merchants to efficiently sell their goods and services,” the statement read. “While the consequences of evolving Congressional actions on card business are hard to handicap, any measures taken by the government need to be carefully considered, as the consequences are likely to impact banks, consumers, merchants and processors like TSYS.”
But the company admits there are unknowns.
“The ultimate impact is not known but we believe excessive government enforced change to this many parts of the payment system does not bode well for all parties,” the statement concluded.
TSYS has built a successful business model on account growth. The legislation could threaten that growth “to the extent account growth becomes less profitable,” Scharf said. “TSYS’ fortunes are tied at the hip with card growth.”
When businesses accept major credit cards they sign agreements with the card companies to pay a percentage of each transaction, usually about 2 to 3 percent. Fees are set in negotiations among the various parties, although merchants say terms are largely dictated by card companies and banks.
The amendment that cleared the Senate involves interchange fees on debit cards, but not credit cards. Debit cards are being used more as customers have become less willing to borrow during the recession. Still, swipe fees from credit card transactions make up a bigger portion of bank profits than fees from debit transactions.
A version of the legislation that cleared the House in December didn’t include restrictions on interchange fees.It is good for customers, some argue.
“It will transfer billions of dollars from banks to American families and small businesses,” said Mitch Goldstone, CEO of Scanmyphotos.com, an Irvine, Calif. e-commerce and retail photo business.
If merchants pay lower fees on customers’ debit payments, those that don’t respond with price cuts will lose cost-conscious customers, said Goldstone.
But it could be for business.
Included in the TSYS statement was a comment from Scott Talbot, senior vice president of Government Affairs for the Financial Services Roundtable, a forum for financial service industry leaders.
“The amendment results in government price fixing and will undermine the availability and pricing of debit and credit cards,” Talbot said.
The Associated Press contributed to this report.