prepaid, credit card programs to expand

U.S. banks that have lost debit card processing revenue due to new caps on fees will likely push customers into prepaid and credit cards and other types of account fees, executives said on Thursday.
Executives for regional banks -- including BB&T Corp , SunTrust Banks Inc , Fifth Third Bancorp and Sovereign Bank -- said at an industry conference that there is no one solution for recovering as much as $8 billion in lost revenue under new caps on what banks can charge merchants for processing debit card transactions.
"There's no one silver bullet," said Eduardo Tobon, CEO of U.S. cards and payments for Sovereign Bank, owned by Spain's Banco Santander .
But lenders will charge customers fees for their overall banking accounts, rather than just debit card use, and push the use of prepaid and credit cards not covered by new debit card rules, executives said at the ATM, Debit and Prepaid Forum.
On Oct. 1 new rules capped what banks can charge merchants to process debit card transactions at 21 cents, roughly half of the previous industry average.
Known as interchange fees, the cap was a key provision of the 2010 Dodd-Frank financial reform law.
Several large banks responded by testing or introducing monthly debit card fees on customers to recoup the lost revenue.
But banks ended the programs over the last week amid an intense backlash from customers, lawmakers, and U.S. President Barack Obama.
The industry has bristled at the response.
Whitney Stewart, SunTrust's senior vice president overseeing the bank's card programs, said the president's remarks were "uncalled for," and said the bank's debit card fee program was going well until consumers became outraged at Bank of America Corp's proposed $5 monthly fee.
This week, SunTrust abandoned its debit card fee and provided refunds to customers who were charged.
Instead of debit cards, executives said banks could adopt prepaid cards and emphasize credit card use. Unlike debit cards, those payment methods do not have their processing fees capped.
Jon Groch, Fifth Third's senior vice president and head of its card business, said the Cincinnati-based bank adopted a card that can serve as a debit and credit card in part to work around the new fee limits.
He also said the bank was examining "revenue adjacencies," like selling data to merchants on how their customers use cards.
Also, bank executives said the industry will likely adopt fees for total accounts, rather than just for debit use.
"If you think about it as just the card, you will lose," said Scott Qualls, BB&T senior vice president and manager of the bank's retail payments.
Qualls said interchange fees can only make up a part of the fees that can be generated from a client account, and banks should examine how customers use a bank's services when charging fees.
Several banks are adopting higher account fees or requiring customers to maintain higher minimum balances to avoid monthly maintenance fees.