subject: Under Durbin, Will DDA Bite the Dust? How to Keep DDA Profitable in a Changing Regulatory Environment [print this page] Under Durbin, Will DDA Bite the Dust? How to Keep DDA Profitable in a Changing Regulatory Environment
The latest din in the financial world surrounds the issues banks are facing in light of the Dodd-Frank legislation and the Durbin amendment that limits interchange fees on debit cards. The chatter is that banks stand to lose billions of dollars in revenue if they can't find a way to offset the new regulations, scheduled to take effect in July of this year. Bank of America, Wells Fargo and Chase are currently piloting programs to test the consumer market. Will customers be willing to pay for services that were once free? Will the loss of rewards programs matter? How will banks keep their investors/board members satisfied and balance that with keeping their customers happy? These are all the right questions to be asking, but it will take time to determine the outcomes.
The banks that are proactively experimenting with new product and pricing options in the market will be ahead of the curve because checking accounts, or Demand Deposit Accounts (DDA), with a debit card attached are clearly under siege. Increased competition and challenges to bring in a better return on investment are pushing the market to change. Additionally, checking as we have always known it has evolved with the advent of remote deposit capture, online banking, increased use of debit cards and smartphone technology. In the end it isn't going to come down to banks just charging more fees or eliminating rewards programs. The traditional DDA process of relying on a single data source to make account opening decisions will no longer be viable. There are many alternative data options that will help financial institutions focus on their most pressing business objectives and lower costs.
The flexibility to choose and adapt DDA platforms over time will allow banks to assess the risks they have and decide how to customize their decision-making process with the most appropriate data source. Whether the highest priority is reducing fraud, maintaining compliance or improving the profitability of its clientele, realtime access to a wider range of information will provide more valuable results. Just as regulations and markets change, the data needs for banks are going to change. Financial institutions must be able to adapt in realtime, with a DDA system that scales. By implementing complex logic and utilizing more data sources, DDA can become profitable again.
The DDA market will continue to evolve as will the regulatory front. Regardless of the outcome of the final interchange rules, banks that start making decisions based on their most pressing business objectives with the new data options that were not on the market before will have a lifeline. More data options mean lower costs, the ability to make more informed decisions and adapt quickly over time.
