JPMorgan, Bank of America and Other Banks Explore a Deal to Shake Up Payments World
A deal for a card network could allow bigger transaction fees, but some bank executives are worried about backlash
- Large banks, including JPMorgan Chase, held preliminary discussions to acquire a network from Fiserv that could allow them to bypass federal debit-card fee caps.
- The 2010 Dodd-Frank law’s Durbin amendment caps debit-card fees for large banks, which an owned network could exempt them from.
- Some banks involved in the preliminary talks expressed concern about potential political backlash from lawmakers and regulators.
Some of the largest banks in the country have been exploring an acquisition that could allow them to get around one of the laws they hate most: the limits on fees they earn on debit-card transactions.
When Capital One Financial bought Discover Financial in a $50.6 billion deal, it got a network that cut out the need for a middleman in card transactions and allowed it to deal more directly with merchants.
Now, big banks are looking on with envy because owning a network can mean exemption from a federal law that caps debit-card fees. Those fees collectively amount to billions of dollars each year across the industry, but banks have long complained the government-defined cap limits their ability to offer customers debit-card rewards and other services.
Some have been exploring a small deal that could upend the rules, though they are worried about political backlash if they try.
Big banks including JPMorgan Chase JPM 1.43%increase; up pointing triangle, Bank of America, Wells Fargo WFC 2.27%increase; up pointing triangle and PNC Financial Services Group PNC 1.48%increase; up pointing triangle have in recent months held preliminary and tentative discussions about a deal to acquire a network owned by the financial-technology company Fiserv FISV -1.05%decrease; down pointing triangle, according to people familiar with the matter.
There is no certainty a deal will happen. Several of the banks that looked at the Fiserv network have already decided it would be unlikely for them to move forward, some of the people said.
Some have privately expressed concern that such a deal could prompt backlash from lawmakers, regulators and merchants, the people added.
The talks, even at a preliminary stage, are one more sign of how eager banks are to find an edge in payments wherever they can. The industry is grappling with rapid changes in the space, driven by the embrace of crypto and fintechs under the Trump administration.
A section within the 2010 Dodd-Frank law, called the Durbin amendment, caps fees large banks can collect from merchants on debit-card transactions, if they are routed through an outside network. But banks would be exempt from that cap if they also own the network, the infrastructure that underpins the transaction.
So-called interchange fees are paid by merchants when consumers shop with their debit cards and are mostly pocketed by banks and other financial institutions that issue those cards. The Durbin amendment gave the Federal Reserve the power to set caps for banks and other financial institutions with $10 billion or more in assets. (The fees on credit-card usage aren’t capped by the law, though they remain another intense fight.)
The fee has been part of a battle ever since. Banks have said interchange-fee revenue previously helped cover the costs associated with free checking accounts and debit-card rewards programs, which have been cut back. Bank of America even briefly threatened to charge $5 a month for debit cards after the rule took effect.
Merchants and the law’s supporters say lower interchange fees have been passed onto consumers and helped keep prices down.
Fiserv provides financial technology that connects Wall Street to Main Street. It owns two networks that process debit-card transactions, called STAR and Accel. The company has been in turmoil, with its stock down roughly 70% from a year ago.