The new debit interchange cap offers opportunity to financial services companies and will spur technology sales until year's end, FiServe President and Chief Executive Officer Jeff Yabuki told investors on a conference call held to report on his company's second quarter earnings. "We believe the finalization of the Durbin rules will allow financial institutions to make decisions that could positively impact IT spends this year," he said.
Yabuki said the newly created two-tier cap system created in the Federal Reserve's final rule complying with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 offers a number of advantages for processors. The two-tier system created in the rule distinguishes between financial institutions that process more than $10 billion annually and those below that mark.
"We view this [two-tier system] as positive for our business in the near and the mid-term," Yabuki stated. He added he particularly likes the new requirement that all debit cards have two unaffiliated networks associated with them.
"The network exclusivity provisions in Durbin that require two unaffiliated networks on a debit card make real the opportunity for [FiServe's] ACCEL/Exchange PIN debit network to engage with larger issuers currently involved in exclusive network relations," he said. "We also believe the majority of these decisions will likely be made in 2011." Yabuki also predicted Durbin will push more prepaid sales. "While interchange limitations on prepaid were different than anticipated, Durbin has substantially increased financial institution interest in general purpose reloadable prepaid," he said.
"Market interest has us also optimistic about the broader prepaid opportunity consistent with our [$465 million] acquisition [of payment processor CashEdge Inc.] earlier this year."
Yabuki expects the CashEdge acquisition will close by the end of the third quarter and bolster FiServ's digital payments business. He emphasized the FiServe payments business was up 5 percent from this time last year and noted that regulatory actions have slowed - from 111 last year at this time to 74 regulatory actions this year.
The regulatory focus has been on smaller institutions and resulted, on average, in a reduction of 70 percent of the total assets of the impacted institutions. "At the same time we continue to see increased voluntary acquisition this year and we expect that to continue," Yabuki said.
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