Regulatory Pressure: What Bankers Need to Know with Kevin Von Holten // Cornerstone Hot Takes

Hey, GonzoBankers. As if there aren’t enough challenges in the payments space today and with non-interest income, there are regulations coming that are putting a lot of pressure on the space.

We want to do a three-part series here, but we wanted to summarize the three regulations we want to talk about first. I’ve asked Kevin Vogel to join us from the payments practice here at Cornerstone to talk through them.

Kevin, what’s the first regulation we’ve seen?

Yeah. So really, it’s going to be a clarification on the original Durbin rule. What we’re calling it is Durbin 1.5. It went into effect July 2023, and it really focuses on those card-not-present transactions.

Now, instead of going over signature, they’re going over PIN networks. What that’s doing is cutting your interchange in half for those transactions that are only going to be growing more in the future.

So the interchange is going to get cut in half because it’s going to go PIN for all the Starbucks pre-orders, online shopping, Amazon and all those things. All your Amazon transactions are now going over the PIN networks.

So it’s going to be tough there, but it’s not the only thing happening with Durbin.

Yeah. So the Fed came out with a revised proposal for the cap on interchange. Right now, it’s about 21 cents plus a little bit. The proposal, as it sits right now, is to go down to 14.4 cents, essentially a 31% decline from where it’s at today.

For folks that are close to $10 billion, that makes going over $10 billion a nightmare. We’ll talk a little bit more about that in the follow-up, but really, even for the regulated institutions, it’s going to be another 30% hit on debit.

But then that’s not even the most important thing. We’ve got more things coming up on the credit card side.

Yeah. I mean, the CCCA, which is the Credit Card Competition Act that our favorite senator from Illinois is pushing. Fortunately, that hasn’t made it through the legislature yet. That one is not as close to being done.

We’ll dig into it a little bit more, but essentially, even though they say it’s only supposed to affect institutions over $100 billion, that could basically impact anybody issuing credit cards in the market today.

So again, more headwinds, more challenges to non-interest income. Still, probably one of the best opportunities to grow your non-interest income is in the payments business, but it’s important to be aware of these headwinds as they come in.

We’ll dig into each of these over the next couple of videos.