But community bank and credit union executives say the government reports are premature and don’t necessarily reflect the impact on their businesses.
“The fees that the credit card processors pass on as revenue to banks like ours have definitely gotten smaller,” Denise Stokes, senior vice president of Sandy Spring Bank in Olney, said in an interview. “Those companies took a hit when revenue dropped for the large banks, so they passed some of that loss on to us in the form of lower rates on processing fees. Our loss hasn’t been huge, not as high as what the large banks have been hit with, but still, it’s been significant.”
Local banking executives said they expect the decline to continue in the coming years, which could prompt community banks and credit unions to follow in the path of many of their larger counterparts, adopting new fees and pulling back on free services to make up for lost revenue.
“When these banks start losing revenue, consumers often start losing free checking and start paying new processing fees,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a Washington group representing
credit unions, community banks and payment-card networks. “In the end, when two large industries fight and go to lawmakers to try to resolve those differences, it’s almost always the consumer who winds up with the short end of the stick.”
In addition to capping swipe fees for large financial institutions, which took effect in October of 2011, an amendment to the Wall Street reform law also included what’s called the “routing and exclusivity” provision requiring credit-card issuers to give merchants’ banks more payment processing options. The intent is to drive down transaction costs for merchants as more processing companies vie to offer the most affordable services.
But some economists expect the provision will lead card companies to offer lower compensation for each transaction.
“The provision that could really start to lower interchange revenues for smaller institutions took effect in April, and in the only full quarter since then, the third quarter of 2012, we saw the first-ever decline in interchange revenue for credit unions,” Bill Hampel, chief economist for the Credit Union National Association, said in an interview, citing his group’s latest quarterly survey. “We are concerned about whether that was a one-time downward shift or the first of several quarters of decline.”
Such uncertainty prompted many banking officials to suggest it is too early to evaluate the law’s impact on small banks and credit unions.
“It’s kind of like saying ‘it hasn’t snowed yet this year, so it’s not going to snow,’ ” Bradford Thaler, vice president of legislative affairs for the National Association of Federal Credit Unions, said of the FTC and GAO reports. “It’s too early to tell, but if anything, we’re seeing evidence that the fees for big and small banks will eventually come together.”
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