Consumers Are Skeptical of Durbin Benefits, According to Survey

Consumers have few expectations that they’ll benefit from pending debit card interchange price regulations, according to new survey findings from Javelin Strategy and Research. And, with consumers used to free checking and debit cards, banks will need to move carefully if they want to impose new fees to make up for revenues lost to regulation, Javelin asserts.

When asked about what merchants would do if the fees they pay to accept debit cards were lowered, some 66% of 4,998 consumers polled agreed that, “Merchants will do nothing—prices will remain the same,” according to Javelin’s new “Payments Regulation and Consumer Expectations: How To Best Manage the Changes Ahead.” Thirteen percent of respondents said “merchants will lower prices overall,” and 12% expected them to lower prices for debit card transactions. Another 9% said they expected merchants would lower fees for some transactions.

“I think it’s general skepticism, consumers do have a fair amount of skepticism resulting from things going on in the economy,” says Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin.

Further, it would take a hefty amount of merchant steering to get consumers to switch to prepaid cards, cash, or other payment forms from credit or debit cards. Forty-seven percent of respondents agreed that, “no discount below 10% would persuade me to switch.” Nine percent of respondents said they’d switch for a discount of 1% to 2.9%; 16% would switch to get discounts of 3% to 5%; 17% would switch for a break of 5.1% to 7.9%, and 12% could change payment forms for a discount of 8% to 9.9%.

“It’s not necessarily going to be worth it” for a merchant to take the effort to persuade customers to use something other than the payment form they present, according to Robertson. There’s a caveat, however. Big merchants might recover their costs on small discounts, simply because of their ability to spread them over large volumes. “That might be worth it,” she says.

Javelin did its actual polling last September, before the Federal Reserve Board released details of its debit card interchange regulation proposal in December. But the survey’s wording was constructed so that results would not be tied to the specifics in the Dodd-Frank financial-reform law and its Durbin Amendment that addresses debit card issues, according to Robertson. The online survey of a random sample of online Americans had a 1.39 percentage-point margin of error at the 95% confidence level, with larger margins of error for subsets.

Some banks have already announced higher checking-account fees or cut debit card rewards programs to make up for revenues they expect to lose under the Fed’s debit regulations that could cap interchange at 12 cents per transaction. Bank income was also hit by last summer’s Regulation E changes requiring banks to get customer approval for debit card overdrafts. But changing the consumer mindset accustomed to free services won’t be easy.

Some 60% of respondents said that any monthly debit fee would make them change to another form of payment. Fifteen percent said they’d change payment forms even if the monthly debit fee were as low as $2 or less per month. Another 15% would change payment forms when hit with fees of $2 to $5, and 6% said they would change if fees were $5 to $10. Only 3% wouldn’t change until monthly fees exceeded $10.

“In general, when you think about the banking environment, consumers have become used to free checking, they’ve been encouraged to use a debit card,” says Robertson. “Now, suddenly, there’s going to be a big shift.”

Rather than slap on fees willy-nilly, banks might keep customers happier if they devised services that consumers find valuable and for which fees might stick, according to Robertson. One type might be alerts, such as when an overdraft is about to occur. Fifty-five percent of respondents in Javelin’s study group that had an overdraft within the past year said overdraft alerts by e-mail or text message would be of value to them compared with 40% of all respondents. Thirty-one percent of overdrafting consumers and 40% of the whole group thought a notice of a large withdrawal or purchase also would be valuable. Regarding alerts for when a balance falls below a pre-set level, 28% of overdrafters and 22% of all respondents thought they would be valuable. “Here’s an opportunity of high value to your customers,” Robertson says.