In 30 seconds
An unidentified speaker argues that Chime’s banking partnerships benefit from differences in debit-card interchange rules. The clip’s figures and description of who pays require clarification against Federal Reserve guidance.
- 1The argumentThe speaker attributes a fintech advantage to the small-issuer exemption.
- 2The actual capThe covered-issuer base cap combines a fixed amount with 5 basis points.
- 3Who paysInterchange is not the same as a direct cardholder fee.
Takeaways
- Some smaller issuers are exempt from the standard interchange cap.
- The covered-issuer base cap is not a flat 50 basis points.
- Interchange differs from a direct cardholder fee.
- Issuer eligibility and effective rates depend on circumstances.
Read the edited text by chapter
The exemption and its limits
In this short clip, an unidentified speaker argues that differences in US debit-card interchange regulation can give a fintech such as Chime an advantage over a large bank. The speaker calls this “Durbin Amendment arbitrage.”
In this short clip, an unidentified speaker argues that differences in US debit-card interchange regulation can give a fintech such as Chime an advantage over a large bank. The speaker calls this “Durbin Amendment arbitrage.”
The speaker describes a threshold of $10 billion in assets and says smaller bank partners can receive a higher effective interchange rate. Chime is a fintech rather than a bank and works with banking partners; the exact economics depend on the issuer and transaction.
The clip’s numerical description is imprecise: the Federal Reserve’s Regulation II sets the base cap for covered issuers at 21 cents plus 5 basis points of transaction value, with a possible fraud-prevention adjustment. It is not a flat 50-basis-point charge. [Federal Reserve regulation](https://www.federalreserve.gov/frrs/regulations/section-2353-reasonable-and-proportional-interchange-transaction-fees.htm).
The speaker also describes the charge as paid by the consumer. Interchange is generally a fee received by the issuer in a card transaction, associated with the merchant side of the payment system; it should not be confused with a direct fee charged to the cardholder. [Federal Reserve guidance](https://www.federalreserve.gov/supervisionreg/regiicg.htm).
The small-issuer exemption generally looks at the issuer’s assets together with affiliates. The clip’s 1.2% figure is the speaker’s estimate, not a universal statutory rate, and eligibility can change over time. [Federal Reserve exemption guidance](https://www.federalreserve.gov/paymentsystems/regii-interchange-fee-standards.htm).
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