Durbin’s Latest Salvo Challenges a New Visa Fee, But Visa Says It Has Dropped It

Sen. Richard Durbin, D-Ill., the author of the fee-capping Durbin Amendment, is well-known as a champion of merchants, but now he’s taking up the cause of small banks and credit unions. Durbin on Tuesday sent a letter to Visa Inc. chief executive Charles Scharf asking for information about a new Visa fee called the Delayed De-Conversion Assessment, though now Visa has decided to back away from the fee.

The assessment levies a charge of 5 basis points on the Visa payment volume of any issuer that sees its Visa volume or Visa card count drop or announces an intention to switch to another network, according to Durbin’s letter.

“Simply put, Visa appears to be imposing a significant penalty on card issuers that try to shift their business from Visa to a competing card network or that see their business shifted to competing networks through market forces,” Durbin’s letter charges. “This raises troubling questions about the fee’s impact on network competition and the burdens the fee creates for small banks and credit unions.”

But Visa last week decided not to proceed with the fee, a spokesperson tells Digital Transactions News, without giving a rationale for the decision. The network has also informed Durbin’s office of this decision, the spokesperson says. “Visa will be notifying our clients as part of our regular communication process on Thursday,” Visa says in a statement released late Tuesday.

Whether or not the fee, which according to Durbin’s letter went into effect in April, would have had the impact the Senator foresees, networks like Visa and MasterCard Inc. are likely reacting to the effects of network competition on their bottom lines, as well as recent defections by major card issuers, says Gil Luria, a managing director at Los Angeles-based Wedbush Securities.

“Visa and MasterCard have been creative at adding new fees in order to make up for the results of competition and regulation, and these types of fees could be seen as anti-competitive,” Luria says by email. “For instance, MasterCard has applied a ‘staged wallet fee,’ which was clearly aimed squarely at PayPal, and Visa has been threatening to do the same.”

Network economics require increasing volumes to drive down costs per transaction. Conversely, a loss of volume drives up the cost of each click through the network data center. MasterCard’s staged-wallet fee, devised three years ago, is an effort to collect revenue from digital-wallet providers on transactions that don’t flow directly from merchants to the network.

At least in part for that reason, Visa was likely hoping the assessment might have helped compensate for future defections by issuers. Big issuers like JPMorgan Chase & Co., which left MasterCard for Visa, have recently shown little hesitation to forsake one network for another when it receives sufficient inducement.

“[Visa] gives a range of discounts and rebates to large issuers for greater volume, effectively decreasing their fees per transaction or per dollar of payment volume,” says Eric Grover, principal at Minden, Nev.-based payments consultancy Intrepid Ventures. “This fee extends the logic to issuers with declining volume, boosting their fees per transaction or per dollar of payment volume.  Additionally, card portfolio migrations aren’t always quick. I suspect Visa figures it might as well boost the yield on issuers it’s losing.”

While it’s not known how far Durbin will go with this inquiry, particularly now that Visa has backed off on the assessment, his letter to Scharf hints that he may be prepared to seek fresh regulation in such cases. “Visa’s new fee could diminish competition between networks and penalize small bank and credit union issuers,” he says in the letter. “Visa’s new fee shows that the need for reasonable regulation to ensure transparency, competition, and choice in the electronic payments system has not diminished.”

The letter poses a list of eight questions to Visa about the Delayed De-Conversion Assessment and asks for answers within 30 days. Among the questions are queries about how the fee will “serve the best interests” of small banks and credit unions as well as consumers.

Grover, however, argues Durbin’s concern is misplaced. “Last time I checked, Visa was a private-sector enterprise, not a public utility, and Sen. Durbin had no legal authority to demand Visa do anything,” he says. “If banks small or large don’t like Visa’s fees, they can and should shift to MasterCard, [American Express], Discover, Star, NYCE, [or] Accel.”

This latest Durbin inquiry comes just weeks after the Senator launched a major investigation of EMVCo that has so far involved two letters with separate sets of questions for that standards body. EMVCo is controlled by Visa, MasterCard, and four other global networks and has responsibility for the EMV chip card standard as well as the 3D Secure online-authentication technology.