Durbin Changes with Kevin Von Holten // Cornerstone Hot Takes

Hey, GonzoBankers. Tony DeSanctis back with the next-level discussion of the regulations we talked about. The first regulation we’re going to talk about here, I’ve got Kevin Vogel here with me again to talk about Reg II, also known as Durbin 1.5.

So, Kevin, let’s get into that one a little bit more.

Yes. We’re calling it Durbin 1.5 because it’s more so just a clarification of the original Durbin Amendment. Back in October 2022, the Fed ruled that card-not-present transactions need to be going over those secondary PIN networks as well.

July 2023 is when it goes into effect. Historically, card-present has been about 50% signature, 50% PIN. Card-not-present, 80% signature, 20% PIN.

Yikes.

So we’re going to start to see that wave really come through and push more to those secondary PIN networks.

One of the reasons you may have not seen it as an immediate, “July 1 of last year, oh my goodness,” is the merchants have to enable those secondary networks.

Exactly. Those merchants are in the process of adopting those capabilities. Some of the bigger guys, like Amazon, have had them for a while, so that impact happened immediately. But Instacart, Uber and a lot of those other places are just starting to implement that capability.

Once that starts to come through, you’re going to see about 30% of those transactions moving over, probably about a 50% hit to your interchange income, which is just going to be significant. It’s going to be in addition to everything that you’re experiencing already.

Yeah. So on your card-not-present transactions, 30% of the volume will move from signature to PIN, which would cut it in half. We think the overall impact is probably 10% to 15%, if you sort of net it out depending on how you’re mixed.

So definitely a not immaterial impact. I know we had a client, even before July, because they had enabled the capability, and what did they see? It was like $60,000 a month in lost interchange?

Per month.

That’s per month, right? So you’re essentially talking about three-quarters of a million dollars in interchange just evaporating. This is directly hitting your bottom line at a time when even more regulations are coming out, more things are impacting you, interest rates, everything’s piling on. This is just going to be in addition to that.

So, payments folks, what are you seeing? Have you started to see the impact of this one? Because this one’s been in effect for just about a year now.

Let us know in the comments if you’re starting to see these impacts, and we’ll be back with the other two videos.