Fed wants to reign in swipe fees on debit card purchases

Limiting debit card swipe fees to 12 cents a purchase was recommended by the Federal Reserve in a proposal Dec. 16. the financial reform bill calls for the Fed to reign in debit card swipe costs along with other bank practices that put the squeeze on retailers that accept debit cards. The Federal suggestion was welcome media for retailers, but financial institutions whined and stocks for credit card businesses plunged. Post resource – New Fed proposal takes aim at excessive debit card swipe fees by MoneyBlogNewz.

The Fed Swipe limit proposal facts

Debit card swipe fees generally mean a 1 to 2 % charge to retailers of the transaction currently. The dollar value doesn't matter. The Fed debit card swipe fee proposal also includes giving merchants a choice from at least two independent debit card networks, a move that would create more competition for Visa and Mastercard. The financial reform bill calls for swipe fees for debit cards to be "reasonable and proportional" to how much the bank has to pay for the electronic transfers to happen which is what began the Fed swipe limit proposal. Banks can be forced to be cost efficient with the debit card swipe fee limits, as outlined by the Fed.

Banks might end up losing billions

In just 2009, credit card companies made $15 billion in swipe fees. The Fed swipe fee limit proposal would be a boon for retailers. Bloomberg spoke to a JP Morgan Chase analyst who said that up to 80 to 90 % of revenue may be lost by banks that issue Visa and Mastercard credit cards. Average debit card swipe fees would go down about 75 percent with the 12 cent swipe fee cap, says UBS Investment Research. The Fed said the new debit card swipe fee limits probably won’t translate into lower prices for consumers. Customers don't need to be on debit card reward programs like banks think. You will find different ways to get consumers interested in your product.

Many react to proposed Fed swipe fee limits

The National Retail Federation said lower costs for merchants can result in discounts for consumers. The fare share for the benefits they get from the card payment network would be paid by retailers. According to the American Bankers Association, the Fed would stop this from happening. Thursday was when the Fed announced the swipe fee proposal. As a response, Mastercard stock fell 9 % and Visa stock fell 11 percent.

Articles cited

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