Fed Cuts Interchange Rates for Debit Cards

Today, the Fed announced a new proposed rule that would limit how much debit card transactions are charged in interchange fees.  The new proposal will limit charges to 7-12 cents for each transaction, while the average now is around 44 cents per transaction.

Visa and MasterCard shares plummeted today as a result, but what exactly does this new rule mean for your business?

1. It’s not set in stone (yet)- Though this new cap is mandated by the Dodd-Frank Wall Street Reform act, the proposal is open for “public comment” until February 22nd which gives banks enough time to leverage connections and manipulate rules in their favor before the rules are actually set.
2. This May Not Affect Fees- Though a substantial percentage of total credit card fees, interchange does not comprise all of the fees charged to merchants for credit card transactions. The proposed rule only affects debit card interchange, not assessments (the part of transaction fees that go straight to Visa/MC) or the processor markup (what your processor gets for their service).  This new rule may make assessments increase and most certainly will affect debit card programs. In fact, Bank of America is already not accepting new customers into their debit rewards program starting February. It’s probably that interchange rates for credit card transactions will also increase to offset this price reduction for debit cards.
3. How Much Would a Transaction Cost Me?- Let’s take the example of a $20 transaction at a sandwich shop. When the customer pays in person with their Visa debit card, the interchange rate is 1.19% + $0.10= $0.34. With the new rule in place, the charge would be maximum $0.12 which translates to a 65% savings (again this is just interchange, exclusive of assessments and processor markup).
4. Be Vigilant- If/When this rule passes, merchants should take care to make sure the savings get passed along to them by processors. Since credit card processing statements are confusing and extraordinarily difficult to decipher, the easiest method may be to compare one month’s statement with old rules in place vs. a new statement where the new rules are in place. There should be a visible difference in the way the merchant is charged, in addition to a decrease in fees for debit card transactions. If you have interchange plus pricing, this will be really easy to tell, since processor markup is the same no matter what kind of transaction occurs. If you don’t have interchange plus pricing, check out FeeFighters to get apples-to-apples bids from processors who offer interchange plus (the most transparent pricing for business owners).

Stay tuned to FeeFighters Business Chops Blog as we’ll be keeping a close eye on this debate, and reporting any news that affects business owners.

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