NEW YORK (
Bank of America's
plan to begin charging $5 a month to debit card customers is unlikely to mean much to
since its fee footprint is tied to so many other transactions, according to industry analysts.
The nation's largest bank will begin charging
early in 2012, seeking to recapture lost revenue from the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which curbs the interchange fees banks charge to merchants when debit card purchases are processed.
So what will this mean to Visa?
"As a Bank of America customer, you're captive to Visa debit," said FBR Capital Markets analyst Scott Valentin.
Some customers will simply accept the $5 monthly fee and do nothing. Some customers will switch to using their credit cards for more purchases, which will push Visa's "debit card revenue down on the margin," but "if the spending moves over to a Visa credit card, Visa is ahead," according to Valentin, since credit card processing is more profitable than debit card processing.
Valentin added that "some consumers might move to prepaid cards, which would avoid the $5 monthly fees, but Visa would prefer that too."
Of course, "there will be some leakage to other networks as customers move away from debit," but on the whole, it seems reasonable that a good portion of consumers used to the convenience of using a card rather than cash, will make the switch to credit cards, benefiting the largest card processor.
Stifel Nicolaus analyst Christopher Brendler said that Bank of America's move "is a negative for Visa and to a certain extent
, but not a huge one," and that "the question is what it does to consumer behavior."
When discussing Bank of America's reaction to the Durbin Amendment Brendler said "I never thought this would be the path they would choose," since "debit is profitable for them, even at reduced rates."
Other large banks, including
have announced upcoming debit card fees or have begun testing fees in limited markets.
While the banks are looking to squeeze out revenue as Dodd-Frank hits their bottom lines and interest rate spreads contract, the forecast for Visa is bright and sunny.
Brendler said that for the largest card payment processor, "there are so many growth opportunities outside the U.S. debit business that this is not going to move the needle materially."
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.