VIEWS: 24 PAGES: 1 CATEGORY: Corporate Finance POSTED ON: 1/12/2011
visa and matercard are under fire and face reductions in debit card fee. This will most likely benefit small retailers. But will the cost reduction be passed on to the consumer?
credit card swipe fee reduction proposal Credit card acceptance fee changes likely The landscape may be changing soon for businesses that accept credit cards. The Federal Reserve announced a proposal that would limit debit card fees to a maximum of 12 cents per transaction. This is a stunning change from the existing interchange or "swipe" fees charged to retailers, which average between 1% and 2% of a transaction, and could drastically change the debit card industry. This is part of the Dodd-Frank financial reform bill signed in July that requires the Fed to limit these interchange fees to a level "reasonable and proportional" to what it costs the bank to process the transaction. The intent of the legislation is to lower the cost for merchants, which, in turn, would hopefully result in lower prices on goods and services for consumers. This is obviously good news for retailers, who fought hard for it. But this is very bad news for banks. These rules will slash debit card revenue that was almost pure profit for the banks. Merchants are charged an interchange fee each time a debit card is swiped. Card processors such as Visa(V_) and MasterCard(MA_) pass on the majority of this fee to the banks. The fee is set by the card network. The average fee is about 2% of the transaction value. A $200 purchase with a 2% interchange fee generated $4 for the bank; the new rule reduces the fee to 12 cents. The National Retail Federation estimates that debit card fees total about $20 billion annually. Bank of America, the biggest issuer of debit cards, said earlier this year that the fee limits could cost the bank between $1.8 billion to $2.3 billion annually. http://www.quantumgo.com Rob Olson
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