Revenue from interchange fees makes up a large share of many fintechs’ income, but a letter from The Clearing House (TCH) to the Federal Reserve Board may change regulations and cost fintechs much of this profit. The prepaid value chain is made up of a complex web of players, with some benefitting more from interchange revenues than others. Mercator Advisory Group’s latest research report, An Exploration of the Complex Prepaid Market and How a Change in Reg. II Could Unravel Fintechs, discusses TCH’s letter and its possible implications – intended and otherwise – on the prepaid market.

“In effect, answers to the TCH’s FAQs could dramatically transform the prepaid market. While fintechs would lose a significant amount of interchange revenue – often one of their key income-generating activities – traditional financial institutions who have never benefitted from this revenue would gain a competitive advantage. Smaller fintechs and companies that partner with small issuers would also benefit from their larger fintech competitors’ reduced interchange revenue,” wrote James O’Brien and Laura Handly, market research analysts at Mercator Advisory Group and authors of the report.

This report has 11 pages and 4 exhibits.

Companies mentioned in this report include: Bancorp, PayPal, Robinhood, Sutton Bank, and The Clearing House.