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February 14, 2023

How does the Federal Reserve Board’s debit card transactions rule impact fintechs?

Carla McMorris


Many fintechs wonder how the debit card transactions rule will impact their interchange revenue streams. Interchange fees, or “interchange reimbursement fees,” are per-card transaction fees charged by the card networks to merchants for processing debit or credit card transactions. 

This blog post will provide an overview of the ruling, its potential impact, and the options fintechs can pursue outside of debit cards.  

Overview of the Federal Reserve Board Ruling

Recently, the Federal Reserve Board finalized updates to a ruling which amends Regulation II (Debit Card Interchange Fees and Routing) and the Official Board Commentary on Regulation II, effective July 1, 2023.1

This Board ruling underscores an existing rule that debit card issuers must enable at least two unaffiliated payment card networks for merchants to process debit card transactions, including card-not-present transactions. Despite the existing rule, some networks are not enabling two unaffiliated networks. Where only one network is enabled, merchants don’t have the opportunity to choose.

In July 2011, when the Board initially issued the ruling, technology had not yet been developed to support card-not-present debit card transactions. Today, technology enables merchants to choose between at least two unaffiliated networks, and that choice is just in time.2 With the spike in card-not-present payments or online payments spurred on by the COVID-19 pandemic, a merchant’s ability to choose networks has become essential to their bottom line. According to Payments Journal, card-not-present transactions will grow at a 9% CAGR, poised to take over card-present transactions by 2023.3

This update to the debit card regulation ruling (or final rule) aims to promote competition among networks. The ruling is also intended to incentivize debit card issuers to improve their fraud prevention systems, as merchants are more likely to select networks with more robust fraud systems.

The Potential Economic Impact

The Federal Reserve Board estimated that the potential economic impact of the final rule would be based on these key factors:

4. Board of Governors of the Federal Reserve System, Memorandum, Subject: Final Amendments to Regulation II to Clarify the Prohibition on Network Exclusivity

Impact of the Federal Reserve Ruling on Fintechs

Fintechs who act as debit card issuers through a banking-as-a-service (BaaS) platform or a bank could see their debit card interchange revenue fall due to this ruling. Merchants will likely choose networks that provide lower interchange fees for card-not-present transactions. 

Some fintechs are adjusting to the debit card regulation by switching from debit card issuance to credit card issuance. 

Moving from Debit to Credit

To impact revenue by as much as 2X through higher interchange fees, companies are switching from debit card programs to credit card programs. Higher interchange fees can accelerate time to profitability for growing companies and support new features and services for their customers.

The Benefits of Credit with Synapse

To collect higher interchange fees on a credit card program, Synapse customers would switch from Deposit Hub to Credit Hub enjoying these benefits: 

  • Easy On-Ramp

Synapse offers a flexible credit limit account capability, which makes it easier to onboard users with a $0 upfront collateral commitment. 

  • Comprehensive Platform

Credit Hub provides a comprehensive platform that inherits all the features of deposit accounts but adds a higher interchange revenue, licensing coverage and credit reporting. A full rewards and points system will come in the future. 

  • Low Capital Commitment

and fintechs access the increased revenue from a Credit program over that of a Debit program without the downside of increased capital commitment.


A loss of revenue due to merchants selecting lower-cost networks for card-not-present transactions is expected by the Federal Reserve Board. How much depends on several factors, including the degree to which issuers need to adjust their debit card programs and the associated compliance costs. Fintechs concerned about the potential decrease in revenue can switch from debit cards to credit cards and secure approximately 2X in interchange fees over typical debit card programs.

Click here if you’d like to learn more about how to access increased Credit program revenue through Credit Hub.


1. Federal Reserve Board, Federal Reserve Board finalizes updates to the Board’s rule concerning debit card transactions, October 3, 2022

2. Federal Reserve Board, Federal Reserve Board finalizes updates to the Board’s rule concerning debit card transactions, October 3, 2022 

3. PaymentsJournal, CNP in a Post-COVID World - How Businesses Can Prepare, January 8, 2021


Synapse Financial Technologies, Inc. is not a Bank.

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How does the Federal Reserve Board’s debit card transactions rule impact fintechs?

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Carla McMorris
February 14, 2023

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