Author Archives: mronan

Latest Nilson Report highlights recovery in small business credit card spending

The Nilson Report has published its annual rankings of the leading U.S. commercial card issuers (by spending volume).  These ranking are broken out into various commercial card categories, such as purchasing cards and small business credit cards. A quick analysis of The Nilson Report data by EMI uncovered the following trends in small business credit card and small business debit card volume:

  • Small business credit card volume rose 6% in 2010, following a decline of 9% in 2009
  • Of the 20 leading small business credit card issuers, only one (Bank of America) reported a decline in volume between 2009 and 2010
  • Small business debit card volume grew by 16% in 2010, compared to a rise of just 4% in 2009
  • Of the top 20 small business debit card issuers, only one (TD Bank) reported a decline in volume in 2010, and 10 of the top 20 reported annual increases of more than 20%

Emergence of fixed-rate student loans

As we enter the main student lending season, two leading banks–U.S. Bank and Wells Fargo–have launched fixed-rate pricing on student loans.  The rate on the U.S. Bank Fixed Rate Student Loan is 7.99%.  Wells Fargo has fixed-rate pricing on four of its student loans, with rates as low as 7.75%.  With this new pricing, the two banks are aiming to differentiate themselves from student lending competitors.  They are also playing on a growing expectation that U.S. interest rates will rise in the coming months.

As these banks have a high profile in the student market, other leading private student lenders will be tempted to follow suit with their own fixed-rate offers.  And the second quarter financials of these banks will be scrutinized in the coming weeks for any indications of a rise in student loan originations.

Is the Fed’s new debit card interchange rate a good deal for banks?

Yesterday, the Federal Reserve published a new proposed debit card interchange rate of at least 21 cents (would be 24 cents on an average $38 transaction), with this rate to come into effect from October.  Is this a good for banks? This depends on where the banks are starting from? They now enjoy an average debit card transaction fee of 44 cents, so this is a significant decline.  On the other hand, the Fed had previously proposed cutting the fee to 12 cents, so this new proposed fee structure is nearly double that.

Eeven with the latest rate proposal, banks will lose significant interchange income.  Some banks have already reacted by ending free checking and debit rewards.  We believe that there could be a re-emergence of debit rewards programs, albeit with different structures and pricing.  So what we may see are:

  • Debit rewards programs that carry program fees, but with waivers for “high-value” customers
  • Inclusion of debit spend in relationship rewards programs
  • Continued focus on developing new rewards programs that are at least partially funded by merchants