How may changing the Durbin Amendment policies affect the BaaS market, specifically the interchange, and how does Lithic approach this situation?

The U.S. still has one of the most favorable interchange regimes and I don’t think that anyone can reliably say that this is going to change any time soon. Durbin-exempt consumer prepaid/debit interchange is still holding steady at ~140bps. For reference, in Europe you'd get about 20 to 30 basis points for consumer card programs. The situation is a bit better for European card issuers that generate commercial volume. They’d earn closer to 1.50%, give or take. But even then, that’s materially lower than what you’d get in the U.S., at north of 2.50%.

A lot of commentators have hypothesized that this is a risk to the long-term unit economics of the industry, that rates will eventually normalize globally. It’s always a distant possibility, but I don't think we should hold our breaths. I’ve always thought about it as a collective action problem. You have a small set of powerful issuers on one side, you have the two networks in the middle playing arbitrator, and you have millions of merchants on the other side. The issuers want to keep interchange high and are pretty well organized to lobby for their collective interests (they can also shop their volume between the two networks). The millions of merchants would prefer to keep interchange rates low, but each of them individually has only very limited volume, and thus very limited voice.  

You still see the giants like Walmart, Costco, Amazon, Facebook, and Google independently negotiating with Visa and MasterCard and working out custom interchange rates. But there's the long tail of millions of merchants that aren't ever going to have the muscle to do the same.