• rss
  • facebook
  • twitter

Federal Reserve Raises Cap on Debit Card Swipes

By Martin Harris in Banking, Credit Cards
June 30th, 2011

The Federal Reserve has raised the proposed cap on banks for debit card transactions from 12 cents per transaction to as much as 24 cents per debit card transaction.

Debit Card Swipe

After much deliberation, financial institutions and their lobbyists won major concessions to the Federal Reserve’s proposal for capping what banks could collect on debit card swipe fees.

Originally, the fees were to be capped at 12 cents per transaction but the Fed issued a final ruling on June 29 that will raise the cap to 21 cents per transaction.

This new ruling gives additional concessions to banks where card issuers can charge an additional cent to each transaction if the institution can show it has a substantial fraud protection systems in place. The additional transaction fees potentially raise the cap to 24 cents per transaction.

In a related article, JP Morgan analyst Tien-tsin Huang explains why the change in swipe fees is good for Visa and Mastercard :

* The 21 cents cap on swipe fee has weakened the case for a reduction in network fees for card issuers which has hurt Visa and MasterCard shares for over a year.

* The Fed has banned banks form routing debit card transactions through any one payments network. The new rules require at least one unaffiliated network on all debit cards. Issuers could satisfy this requirement by adding an independent PIN network which is great for Visa because of its dominant market share, but it could also mean higher share for Mastercard.

* The interchange cap of 21 cents was higher than the 12 cents proposed by regulars last year, and makes room for an additional charge to cover fraud. Network fees earned by Visa and Mastercard are now part of a list of recoverable expenses. This would weaken the case for a dramatic reduction in card issuer network fees.

So what does this news mean for consumers?

The average consumer probably won’t notice any difference as the new fee structure only applies to fees charged to merchants for accepting credit and debit cards. While it may result in increased prices wherever credit and debit cards are accepted (which is everywhere), the offest is not likely to cause alarm.


One Response to 'Federal Reserve Raises Cap on Debit Card Swipes'

Subscribe to comments with RSS

  1. Kevin
    posted on July 16th, 2011

    You’ve got great insights about how this debit credit swipe issue will effect everyone, keep up the good work!

Start selling online with AmeriCommerce