<div id="readability-page-1"><div><ul><li>Key insight: Given new government rules on payment processing, giants like Bank of America, Chase and Wells Fargo would benefit immensely from acquiring proprietary debit card networks. </li><li>Supporting data: In 2024, BofA, Chase and Wells Fargo combined had $1.425 trillion in debit purchase volume, on which they earned 49 basis points of interchange fees. </li><li>Forward look: It's time for banking heavyweights to stop playing a rigged game and buy debit networks. </li></ul>Bank of America, Chase and Wells Fargo have roughly a third of the U.S. debit market, almost entirely branded with Visa. The debit economics of these retail banking colossi — and, by extension, their fundamental customer relationships — are threatened from multiple competitive, regulatory and legal vectors. Since 2011, the Durbin Amendment's debit-interchange price controls have put large banks at a distinct structural disadvantage against exempt debit and credit cards, which enjoy higher, market-driven interchange fees.Competition is increasing. Capital One's acquisition of Discover freed it from the straitjacket of price controls and merchant-dictated routing. The Federal Reserve has held that when a debit network doesn't route a transaction to an independent issuer, it isn't subject to the Durbin Amendment. By converting its Mastercard and NYCE debit portfolio to Discover, Capital One captures richer market interchange fees. With this massive edge, it will win debit card and retail banking share away from larger competitors by offering consumers superior value fueled by market interchange fees. Unlike community banks, which are also exempt from the price controls, Capital One has the scale, resources and marketing savoir faire to fully capitalize on this advantage.On the regulatory front, the already paltry debit interchange cap to which banks with greater than $10 billion in assets are subject is on the precipice of a severe reduction.If nothing else, a delayed but inevitable update of the cap by the Fed will reduce it. By law, the Fed is charged with capping debit interchange fees so they are &#34;reasonable and proportional&#34; to issuers' incremental processing and fraud-prevention costs. By the Fed's own charitable tallying, issuers' processing costs have plummeted roughly 50% since the original 2011 cap was established (based on 2009 data). Relying on 2021 metrics, the Fed proposed a 28% reduction (on a typical $50 transaction) in November 2023. Caught between a firestorm of protests from banks decrying the proposed cut and merchants demanding more, the Fed has hesitated. It can't delay indefinitely.An even more devastating threat to the debit interchange revenue of leading banks looms in the courts. Supreme Court bound litigation questions whether the Fed faithfully implemented the statute. (Spoiler: It did not.)Conflicting circuit court decisions are bringing this to a head. In Corner Post v. The Board of Governors of the Federal Reserve System in the 8th Circuit, Judge Traynor ruled that the Fed included recovery of impermissible costs in its standard and that applying a single, uniform cap for all issuers regardless of individual costs was illegal. Conversely, in the 6th Circuit, Judge Tatenhove held in the Linney's Pizza case that such rulemaking was within the Fed's prerogative. With the Supreme Court having euthanized the Chevron deference doctrine in 2024, Traynor's logic, anchored in the statute's text, is likely to prevail. If it does, the debit interchange economics for giants like BofA, Chase and Wells Fargo, whose variable debit-processing costs per transaction are less than a cent, will be destroyed.Capital One's escape from this pernicious regime of price controls and routing mandates raises the question: Why haven't larger retail-banking behemoths taken the same path? In 2024, Chase's, Wells Fargo's and BofA's debit purchase volumes were 7.1, 7 and 6.8 times, respectively, greater than Capital One's, making their opportunity proportionately that much greater.On top of reduced debit interchange revenue, highly profitable credit cards, which account for a majority of general purpose card spend, are becoming less attractive. Surcharging is surging. If the proposed settlement of merchants' long-standing class action antitrust suit against Mastercard and Visa over credit interchange fees and acceptance rules is approved, it will meaningfully loosen surcharging restrictions. Merchants would be free to surcharge Mastercard and Visa credit cards without surcharging Amex and Discover. If a merchant surcharges Amex, Amex requires they surcharge all other card products as well, including debit. Visa and Mastercard ban surcharging debit. The settlement, consequently, will open a surcharging floodgate.Increased surcharging will annoy cardholders. While it won't cause Americans to abandon credit cards, some payment volume will shift to debit, making it all the more urgent that large banks have compelling debit products supported by market interchange fees.The strategic imperative is clear: These banking titans should buy their own debit networks.Consider the dormant potential of national debit networks like Star, Accel and NYCE. Today, they operate as secondary utility pipes owned by core processors. But if Chase acquired Star, the calculus would change overnight. By purchasing a network, investing in its acceptance infrastructure and converting their mammoth Visa-branded debit portfolios to their newly proprietary rails, banks would capture market issuer interchange economics and network acquirer processing and licensing fees. Additionally, they would avoid network issuer processing and licensing fees currently paid principally to Visa. Transactions routed over their network would keep the entire economic pie in-house, a large piece of which would fund rewards and benefits.Furthermore, a bank-owned network could leverage its massive scale to negotiate directly with merchants, as well as design and execute sales-generating promotions on their behalf.In 2024, BofA, Chase and Wells Fargo combined had $1.425 trillion in debit purchase volume, on which they earned 49 basis points of interchange fees. The Fed's proposed adjustment would reduce that to 35 basis points, costing them $2 billion. The faithful implementation of the law, as required by the Corner Post ruling, would reduce that further to roughly two basis points, costing them $4.7 billion. Market interchange for branded and unbranded debit, however, is richer, at 141 and 67 basis points, respectively. A Chase-branded debit network would gradually ratchet its interchange rates up from 67 basis points to roughly 140 or more, earning $20 billion — $13 billion above the current cap.America's financial giants have passively accepted Durbin's mandated revenue destruction. It's time for banking heavyweights to stop playing a rigged game and buy debit networks. If one colossus acquired a debit network and upped its game and value for consumers, the others would have to follow.Moreover, if they converted their Visa-branded debit cards to their own networks, that would end any plausibility that the DOJ's debit antitrust suit against Visa might have had.Markets work. Economic activity, innovation and value inevitably migrate from more to less regulated domains. If BofA, Chase and Wells Fargo each bought a debit network and converted its cardholders to their new rails, it would drive a stake through the heart of the Durbin Amendment, invigorate debit and retail-banking competition and create more value for consumers. </div></div>

Major banks like Bank of America, Chase, and Wells Fargo are urged to acquire proprietary debit card networks to enhance their competitive edge amid regulatory challenges and decreasing interchange fees. With significant debit purchase volumes, these banks face threats from competitors like Capital One, which has successfully navigated price controls. The Federal Reserve's potential reduction of debit interchange caps and ongoing litigation could further impact their revenue. The article emphasizes the need for these banks to develop compelling debit products to retain market share.

- New government regulations on payment processing compel major banks like Bank of America, Chase, and Wells Fargo to consider acquiring proprietary debit card networks to enhance their profitability.  
- These banks currently face reduced debit interchange revenue due to the Durbin Amendment and increasing competition, impacting their customer relationships and revenue streams.  
- Acquiring and operating their own debit networks could allow them to capture higher interchange fees and respond effectively to changing market dynamics, benefiting consumers and revitalizing the retail banking sector.

American Banker

Visa

Capital One Financial

Wells Fargo

Bank of America

JPMorgan Chase

Discover Financial

Mastercard

American Express

BANK OF AMERICA CORPORATION DEP SHS REP 1/1000TH INT NON CUM PFD QQ

BANK OF AMERICA CORPORATION DEP SHS REP 1/1200TH PRF SERIES '5'

BANK OF AMERICA CORPORATION 7.25% NON-CUM PERP CONV PFD SER L

BANK OF AMERICA CORPORATION 5.875%NON CUM DEP SHS REP1/1000TH SER HH

BANK OF AMERICA CORPORATION DEP SHS REP 1/1200TH PRF SERIES '2'

BANK OF AMERICA CORPORATION 5% DEP SHS REPR 1/1000TH NON CUM PFD LL

BANK OF AMERICA CORPORATION DEP SHARES REP 1/1000TH PERP PFD SER 'E'

BANK OF AMERICA CORPORATION INCOME CAPITAL OBLIG NTS DUE 15/12/2066

BANK OF AMERICA CORPORATION 4.375% DP SH RP 1/1000TH IN NON CU PF NN

BANK OF AMERICA CORPORATION DEP SH REP 1/1200TH PRF SER 1 USD25

BANK OF AMERICA CORPORATION 5.375%DEP SHS REP 1/1000TH NON CUM SR KK

BANK OF AMERICA CORPORATION 6%NON CUM DEP SHS EACH REP 1/1000 SER GG

BANK OF AMERICA CORPORATION DEP SHS REP 1/1200 PFD SER 4 USD25

BANK OF AMERICA CORPORATION DEP SHS REP 1/1000TH NON CUM PFD SER SS

BANK OF AMERICA CORPORATION 4.125%DEP SH REP 1/1000 PFD SER PP USD25

Bank of America Corp

JPMORGAN CHASE & CO. 4.20% DEP SHS REPSTG 1/400TH PFD SER MM

JPMORGAN CHASE & CO. 6%NON CUM DEP SHS REP 1/400TH PFD SER EE

JPMORGAN CHASE & CO. DEP REP 1/400TH (5.75% NON CUM PFD DD)

JPMORGAN CHASE & CO. 4.625% DEP SH RE 1/400TH INT NO CU PF LL

JPMorgan Chase & Co.

JPMORGAN CHASE & CO. 4.55% DEP SHS REPSTG 1/400TH PFD SER JJ

JPMORGAN CHASE & CO. 4.75 DEP SHS REP 1/400 NCUM PFD SR GG

WELLS FARGO & COMPANY DP SHS REP 1/1000TH INT NCUM PFD CL A DD

WELLS FARGO & COMPANY 7.5% PERP CONV PRF CLS 'A' SERIES 'L'

WELLS FARGO & COMPANY DEP SHS REP 1/1000 INT PER PFD SER Y A

WELLS FARGO & COMPANY DP SHS REP 1/1000TH INT NCUM PFD CL A CC

WELLS FARGO & COMPANY 4.75% DEP SHS 1/1000 NCUM PFD CL A SR Z

WELLS FARGO & COMPANY DEP SHS REP 1/1000TH INT PFD SR AA (CLA)

CAPITAL ONE FINANCIAL CORP DEP SHS REP 1/40TH NCUM PFD SER N

CAPITAL ONE FINANCIAL CORP 4.8% DP SH RP 1/40TH NON CUM PERP PFD J

CAPITAL ONE FINANCIAL CORP DEP SHS REP 1/40TH NON CUM PERP PFD  I

BankThink Why are huge debit card issuers still paying Visa to route payments?