Debit Cards — Changing Landscape

Feb 1, 2011  As you may be aware, last year, the pin debit networks all dramatically increased their pricing structures and eliminated the cap on their fees….at the same time that Visa/MC lowered their signature debit interchange rates (particularly on sales under $15)…..taking away the cost advantage for merchants when customers use pin activation….there is a great savings for NON-PIN debit transactions under $15.

As part of the Dodd-Frank financial reform act passed last year by Congress and signed by President Obama, the government is now required to put limits on debit (signature and pin) interchange fees. The Federal Reserve is responsible to gather information from the public and establish the rules…..they have announced preliminary guidelines, which must be finalized by the end of April and implemented at the end of June.

Currently, debit (pin and signature) interchange fees range from approximately 1% of the value of the sale plus between $.16 and $.24 per transaction…there are variations between Visa/MC and the pin debit networks, but they are all pretty close.

The PRELIMINARY recommendation by the FED is to limit debit interchange fees to between $.07 and $.12 (a number of variables for the range and smaller issuing banks would not be subject to the interchange limits) and not have any percentage……these do NOT include fees charged by processors (like First Data/CTS) for their services.

If the recommendations are anything like the final rules, merchants will save significantly. It is unclear what will happen to the pin debit networks as they do not have other revenue sources to make up the shortfall…..we are already seeing banks institute new fees to make up for the billions they will lose when the interchange is regulated.