Risk Management Could Go Out the Window if Durbin Amendment PrevailsTheodore Iacobuzio |
Just got back from MasterCard’s America Risk Management Academy meeting in San Diego, where I led a panel (more about that in a minute). During the conference news of the Sony breach surfaced, which led to some pretty interesting discussion.
Not to sound like too much of a homer, but it was one of the most informative conferences of its type I’ve ever attended, and I’ve attended more than a couple. I dined with a gentleman from a major consulting company who told me that MasterCard’s global risk management events (this year’s two remaining are in Beijing and Prague) are the industry’s best—and best attended. The location at Hotel Del Coronado didn’t hurt, either.
The panel, comprised of current and former industry analysts, turned into a very lively discussion. The show stopper came from a very bright Aite Group analyst named Julie McNelley, who remarked in passing that one of the unintended consequences of the Durbin amendment could be a closing off of the debit spigot: 12 cents a transaction just isn’t enough to pay for risk management.
I asked her to repeat the remark, and she did. The audience pricked up its ears as well.
McNelley’s assertion is echoing more widely in the industry. As noted, the Sony story actually broke during the San Diego conference, and you can be sure that the attendees were thinking through what a bare-bones debit structure was going to look like in terms of deploying technology to gauge the safety of transactions.
The current pass-through structure in cards covers a lot, and one of the things it covers is risk management. Financial institutions can either perform risk management with a scalpel or a hatchet (some global debit markets have a 30% issuer-side turn-down rate for certain kinds of transactions). One thing the legislation could do is take away the scalpel and hand issuers the hatchet. The declines would go up, which, it is safe to say, would make nobody happy—least of all merchants.
Also appears on The Heart of Commerce Blog.