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Most Consumers Unsure Who Benefits From Debit Card Regulations

A survey released this week by Javelin finds that consumers are being given mixed messages from banks and merchants on debit card use.

A majority of consumers believe that debit card regulations -- such as the Durbin Amendment -- benefit banks, according to a survey conducted by Javelin Strategy & Research. According to Javelin, the results highlight how recent debit card regulations have transformed market incentives for payments, creating a confusing environment for consumers.

The Durbin amendment, part of the Dodd-Frank financial reform bill, caps the amount banks can charge retailers for swiping their debit cards. The cap limits the fee to an average of 24 cents per transaction instead of the previous industry average of 44 cents.

[For more on the Durbin Amendment, click here.]

For years, according to Javelin, banks have encouraged customers toward debit card use, a profitable business for banks. But with debt card issuers facing losses in revenue due to regulations such as Durbin, they are steering customers towards more profitable credit cards. However, says Javelin, most merchants are benefiting from Durbin-driven reductions in interchange fees and are encouraging customers to use debit cards. Meanwhile, a number of small merchants that don't benefit from Durbin are discouraging customer from debit card use, according to the report. According to the survey, consumers are facing a "bewildering onslaught" of mixed messages about which payment option to use.

"FIs especially took a big public relations hit in the last quarter of 2011 when they lost the opportunity to educate their customers about these new regulations, then attempted to impose measures that consumers felt were punitive," reads a portion of the report. "As a result, 70 percent of consumers believe that recent debit card regulations will actually benefit banks, whereas only 30 percent believe that the regulations will benefit merchants."

The survey found that consumers still prefer debit cards, but would use them less if banks instituted fees for using them. In that situation, 32 percent of consumers would choose cash as their payment option, 25 percent would pay with a credit card and 26 percent would switch to another bank that didn't charge for debit cards, the survey found.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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