The Senate recently voted on whether or not to delay the decrease of debit card swipe fees, and the vote to delay failed. As you can imagine, the banks were lobbying very heavily to delay their loss for as long as possible, but come July 21, 2011, all debit and credit card swipe fees will be regulated by the US government, and the maximum fee that can be received by banks is a mere 12 cents. That’s down substantially from the 44 cent average swipe fee business pay today.
On the surface, you might be thinking that this move is a good one, as banks have been ripping consumers off for years and anything we can do to put money back in the pockets of small businesses should have been done ages ago. I agree that something needs to be done about these fees, because many businesses are offering cash only prices and considering that a small percentage of every transaction is lost. But cutting out $16 billion in bank revenue is not the answer, and it’s going to be felt by every consumer with good credit.
Who Reduced Swipe Fees Will Help
The winners of this new law are clearly anyone who accepts credit cards. Every credit card transaction is subject to a fee, paid solely by businesses. That fee cuts into the profits that business can achieve and with banks receiving a $700 billion bailout, lawmakers have been looking for a way to help businesses for years. This certainly won’t push a business from treading water to super success, but it will help the overall bottom line.
Take McDonald’s for example. A fast food restaurant that has been accepting credit cards for years, McDonald’s is a place where more and more consumers are paying with credit rather than cash. If one store brings in $3 million in sales every year, $2 million of which comes from credit and debit cards, they stand to save around 1% of the overall revenue generated. That means this one store will pocket around $20,000 that banks would previously split with Visa and MasterCard. Add that number up a few hundred thousand times and the total saved is $16 billion.
Who Reduced Swipe Fees Will Hurt
This law is going to hurt everyone else. You, me and every other American who uses credit and debit cards regularly will suffer the consequences yet again. Banks are not going to sit by and simply take the revenue hit without retaliation. Some of the ways you can expect banks to make-up for the lost revenue are as follows:
- Reduced credit card rewards – Amazingly, credit card rewards programs continue to thrive even in a down economy. In fact, the current state of credit card rewards is about as good as it’s ever been but don’t expect to see $500, $250 or even $100 bonuses in the future for acquiring a new credit card. It’s difficult to predict just how far rewards will fall, but with banking revenue being cut yet again, it’s just as difficult to imagine them leaving rewards un-touched.
- Increased banking fees – The amount of credit and debit card accounts without an annual fee were reduced after the first set of credit card regulations were passed and this new law will create round 2. Almost every savings, checking and card account will probably have a monthly or annual fee attached after this regulation is in place so expect to have to pay for your banking services going forward.
- Reduces spending and credit limits – One of the things being tossed around by Chase right now is capping the amount a debit card holder can spend on a single purchases. In order to curb the 12 cent maximum debit card swipe fee revenue, Chase is considering a $50 limit on all debit card purchases. And you can bet if Chase does it, other banks will follow suit.
There is no debating that initially, a move to curb card swipe fees is a good one for the economy. Small business will reap the reward and the consumers will have the illusion that goods and services could become cheaper as businesses pass along the savings. Realistically however, there won’t be any type of savings for consumers and banks will make up for lost revenue. As much as I hate that banks took $700 billion and are still paying out big bonuses, this was a law I didn’t want to see happen, from a consumers perspective.