The President will sign the Dodd-Frank Wall Street Reform and Consumer Protection Act later this week. That will set the clock ticking on number of deadlines established by the financial regulation reform bill. Here are the two big ones to watch for.

The regulation of debit-card interchange is the one that is likely to have the most immediate impact on the payments business. The legislation gives the Federal Reserve Board 9 months to establish standards for assessing whether the interchange fee that an issuer charges is “reasonable and p;roportional to the cost incurred by the issurer with respect to the transaction.” It provides some guidance on this. The Fed is supposed to look at the “incremental cost” of the transaction but it can provide a boost under certain circumstances for expenditures that the issuer makes on fraud protection. While cost-based regulation may sound easy it is generally complicated and controversial.

The Fed will be collecting lots of data and sifting through many competing claims from all of the parties involved in setting these standards. At a minimum the Fed will have to go through this exercise separately for signature and PIN debit. It may also have to do this at a very refined level to the extent issuers can credibly argue that their incremental costs vary by merchants, segments and types of cards.

How the Fed chooses to implement these regulations remain to be seen. Historically, the default for interchange fees is set by the networks. The Dodd-Frank bill, however, regulates interchange fees at the bank level—for all banks that have $10 billion or more in assets. It appears that a bank with less than $10 billion of assets can have any interchange fee it wants (and since law provides that the merchant can’t discriminate against issuers it does not appear that the merchant or its acquirer can refuse these cards). Larger banks, again it appears, must have individual interchange fees that are consistent with whatever standards the Fed sets.

We have well over a century of experience with cost-based regulation. Several things are pretty predictable:

There will be long-standing controversy over how costs are calculated. Remember in this business a tenth of a basis point multiplied times volume is a lot of money. It actually matters whether the Fed standard suggests that 61 rather than 60 basis points is warranted for an issuer.

The cost-based regulations will result in increases in costs. That is why public-utility regulation moved away from cost-based pricing. If issuers get to recover their transactions costs and fraud costs they don’t have an incentive to minimize those costs anymore. There will be cost creep. The likely reductions in interchange fee revenues and caps on these rates will lead banks to make up the revenue elsewhere.

That’s the effect everyone has already talked about and acknowledged. It is just inevitable that consumers are going to be paying more for either debit-card transactions or some other part of the checking-account relationship.

The Consumer Financial Protection Board will also likely have significant consequences on payment card business and especially on credit cards. It is also the most unpredictable. Much of the specifically intrusive aspects of consumer financial protection that had been proposed—like letting the new agency design and insist on its own “plain vanilla” products—got stripped out. Now there is a vague prohibition of “abusive” practices and an agency that has a lot of discretion, but no obligation, to regulate pretty much all financial products. The CFPB will be run by a Director who is the sole decision maker. I think that is a recipe for disaster for everyone concerned. It leaves the Director completely exposed and solely responsible for every decision, and it provides few checks and balances. But in any case that’s what we have.

The President will need to nominate a Director soon and the Senate will have to approve his candidate. The manner and extent to which the new agency gets involved in the credit card market depends on lot on who becomes Director. Some of the people who the White House have suggested as possible candidates believe that credit cards have been very harmful to society and that the government should develop rules that prevent or deter people from borrowing.

Other possible candidates could take a more balanced view. The payment card industry will be joined to the hip of whoever that person is for the next five years.

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David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass.

Visa today announced the first phase of a national marketing campaign to raise consumer awareness about the benefits of using reloadable prepaid debit cards instead of cash for purchases.  The campaign is designed to reach financially underserved consumers in particular - those without a traditional banking relationship, access to a payment card or mainstream financial services, and who rely heavily on cash for everyday transactions.  According to Visa estimates, there are approximately 80 million financially underserved consumers in the U.S. alone.

The campaign brings to life how Visa prepaid debit cards can enable better money management and empower consumers looking for an alternative to a cash-and-carry lifestyle.  The fundamental messages of the campaign focus on core product values, including:

• Control - enabling consumers to manage their spending on their terms
• Convenience - the ability to make purchases online, at retailers - even to pay bills
• Security - safer than cash and registered cards are replaceable if lost or stolen
• Access - easy, timely access to their money through direct deposit

The multi-channel campaign integrates social media, mobile, digital, grassroots events, and radio advertising, as well as in-store demonstrations, displays, and promotions.  Digital media is a central element of the campaign.  Online display ads provide direct access to purchasing cards online through Visa partners, and social media enables consumers to connect as a community through the Visa Prepaid Debit Facebook page (www.Facebook.com/VisaPrepaidDebit).  In-store demonstrations and local events provide an opportunity for personal interaction with consumers, where product experts explain how reloadable prepaid cards work, and help consumers apply for a card onsite.

“Core to this campaign is Visa’s ability to reach consumers who may not realize they can enjoy the benefits of a Visa product, and experience a better alternative to a cash-and-carry lifestyle,” said Hyung Choi, head of U.S. prepaid products, Visa Inc.  “The campaign builds upon Visa’s long-standing commitment to extending financial inclusion to more consumers, while at the same time driving opportunities for Visa, our partners and clients.”

Research by the Mercator Advisory Group shows that the majority of consumers do not make full use of the opportunities provided by prepaid cards. “Our CustomerMonitor Survey Series conducted in 2009, documented the fact that only a very small number of the unbanked and underserved have purchased or reloaded a general purpose reloadable prepaid card in the last 12 months,” said Tim Sloane, director of the Prepaid Advisory Service at Mercator. “This clearly demonstrates that the industry has a significant opportunity to more strongly communicate the benefits of prepaid cards to consumers, as compared to alternatives that include cash and alternative other financial services offerings.”

For more than a decade, Visa has invested in growing the prepaid category in the U.S. and around the world.  Visa’s flexible platform enables a diverse set of prepaid products meeting highly specific needs supported by technology enhancements and services, prepaid processing and a global infrastructure that ensures interoperability and consistency.  With a focus on migrating paper-based programs and processes to electronic forms of payment, Visa has established more than 10,000 Visa prepaid programs in 110 countries, delivering greater convenience, choice and security to consumers, businesses and governments.  Access to electronic payments can help empower financially underserved individuals, providing more choice and greater control over their money and enabling their inclusion in the financial mainstream.  Additionally, Visa partners with leading consumer advocates, educators and financial institutions to encourage responsible, informed use of digital currency through its financial literacy programs.

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