Capping debit card swipe fees at twelve cents a purchase is a component of a suggestion submitted by the Fed on Thurs. The swipe fee limit is part of a set of brand new debit card rules. The Federal suggestion is an effort to adhere to requirements specified in financial reform legislation passed last summer. Merchants hailed the proposal and credit card issuing banks cried foul as major charge card corporations took a struck on the stock market.
Information on the Fed swipe limit proposal
Under the current system of debit card swipe fees, credit card companies charge retailers 1 to 2 percent of the transaction, regardless of the dollar value. More competition would be added to compete with Visa and Mastercard with the Fed swipe fee proposal as merchants would be able to choose from at least two independent debit card networks. The reason why the Fed came up with the swipe limit proposal was because of the financial reform bill. It required that banks have to make debit card swipe fees “reasonable and proportional” to what the bank pays to process the electronic fees. Banks can be forced to be cost efficient with the debit card swipe fee limits, according to the Fed.
A quick way for banks to lose billions
In just 2009, credit card companies made $15 billion in swipe fees. Retailers would likely enjoy have the Fed swipe fee limit proposal go through. Any banks using Visa or Mastercard may lose up to 80 to 90 % in revenue. A JP Morgan Chase analyst told this to Bloomberg. Average debit card swipe fees would go down about 75 percent with the 12 cent swipe fee cap, says UBS Investment Research. According to the Fed, debit card swipe fee limits won’t change much. Consumers won’t even notice. Customers don’t need to be on debit card reward programs like banks think. You will find different methods to get consumers interested inside your product.
Reactions to Fed swipe fee limits
As outlined by the National Retail Federation, it may be good for consumers. This would be because discounts are easier to give when merchant’s costs are down. The American Bankers Association said the Fed would allow retailers to stay away from paying their fare share for the benefits they get from the card payment network. Shortly following the Fed presented the swipe fee proposal Thursday, Visa stock fell 11 percent and Mastercard stock fell 9 percent.
Citations
Washington Post
washingtonpost.com/wp-dyn/content/article/2010/12/16/AR2010121604553.html
Bloomberg
bloomberg.com/news/2010-12-16/federal-reserve-moves-to-reduce-debit-card-fees-visa-mastercard-decline.html
Wall Street Journal
online.wsj.com/article/BT-CO-20101216-713515.html
Martin Rogen 