Merchants and their customers will save billions of dollars when new Federal Reserve regulations cutting debit card swipe fees roughly in half roll out, according to the National Retail Federation.
“Retailers across the nation are developing a wide range of innovative ways to pass these savings along to their customers with lower prices and better value,” said NRF SVP and General Counsel Mallory Duncan. “Change won’t come overnight, but consumers will definitely benefit. Reducing these fees will put billions of dollars back into the Main Street economy, helping American families stretch their paychecks and ultimately preserving and creating local jobs to keep America on the road to recovery.”
Under federal regulations made final this summer, the “swipe” fees the nation’s largest banks charge merchants to process debit card purchases will be capped at no more than 21 cents per transaction – plus 0.05 percent of the purchase price and, in most cases, an additional 1 cent for fraud prevention. That compares with 1-2 percent of the transaction – about 44 cents on the average retail purchase but several dollars on bigger-ticket items – under current fees. Debit card swipe fees currently total about $20 billion annually, and analysts have estimated the cap will save merchants and their customers about $7 billion. Small and mid-size financial institutions with less than $10 billion in assets are exempt.
While the cap will produce considerable savings for retailers and their customers on most purchases, some merchants are upset that fees could actually go up on small-ticket purchases. The cap amounts to 27 cents on a $100 transaction, or about one-sixth the $1.50 collected under the current fee schedule. But the cap comes to 22 cents on a $2 soda or cup of coffee, for example, that currently carries a fee of only 8 cents. The regulations would allow banks to charge less than the cap for small purchases, but recent news reports indicate that Visa and MasterCard banks plan to instead charge the maximum allowed.
NRF has fought for debit and credit card swipe fee reform for more than five years, and worked with other merchant groups to convince Congress to include language in last year’s Wall Street reform bill requiring debit fees to be “reasonable and proportional” to banks’ actual costs of processing the transactions.