Debit and Credit Card Swipe Fees Decrease July 21st – Watch Out

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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.

Published or Updated: June 13, 2011

Comments

  1. Tom says:

    The entire message about fee reduction hurtng consumers is a fales one. I get NOTHING from credit card reward programs. Thus, the point is mute and a waste of time. The idea that a bank will limit the amount of money on a card swipe is moronic. Any bank that tries it, is begging to loose every customer they have. And the entire premise of more fee increases will simply make more consumers look more locally for a bank that wont steal them blind for a checking account. I like that last one. It forces big zombie banks to shut their doors.

  2. Ralpho says:

    Then we will outlaw what ever they try to screw us on next.
    seems pretty simple to me.

  3. mike says:

    Can you say scare tactic…. who ever thought that making it easier for small business to turn a profit was a bad thing….. after all what comes around goes around would you rather have a few banks have all the money or all your friends and neighbors that run business that give paychecks to your friends and neighbors…

    • Michael says:

      Certainly don’t disagree with your outlook Mike, but from purely a consumers point of view, this move will cost them. Goods will not be cheaper, and banking services will cost more, whether you bank at Citi, or at the local credit union. Banks will make up the difference.

      This law simply moves money from consumers accounts to small businesses, without the purchase of anything. I don’t like it.

      • OHB says:

        this law HELPED small business. MOST SMALL BUSINESS are cautiously happy rightly so because they KNOW the BANK will try to make up that loss. More than likely it will be in fees to the consumer not the merchant. The new regulations cap the dollar amount banks collect from merchants every time someone pays with a debit card. FOR YEARS banks have unrightly been charging the banks 44 cents per swipe. THEIR interchange fees do not warrant that type of fee and for years they have been raking in pure income. The small businesses were offering incentives such as a dsicount for using cash! that was to decrease their costs! This will help businesses and as consumers we DO HAVE CHOICES! Cash is still negotiable and I personally have no problem going back to cash and checks. Credit unions welcome you with open arms and some of them are offering to pay the concumer 5.00 a month for a year to move their account relationships to them. Remember that banks with less than 10 BILLION dollars in assets is not affected by this change.

  4. Robert says:

    Uhh… this is a tad wrong.

    Swipe fees really only hurt the small transaction dealer. (IE: Fast Food). But the percentages get you. The “Rewards” on the Rewards cards are PAID BY THE RETAILER!, Notice that most cards average about 1%? Well when a retailer runs a rewards cards they have to pay that 1%.

    IE: Retailer pays 1.74% on a “regular card” plus the swipe fee.
    Customer has a “Rewards” card, and Retailers fees are now 2.75% plus swipe.

    Bank lost nothing…

    I’ve seen some retailers refuse reward cards on large purchases.

    • OHB says:

      you are right. the fees the banks were inposing on small business were completely outrageous what banks tout as being “necessary’ is completely bogus! It is always about their bottom line. What you will NOT see is the BIG BONUSES they pay to their CEO’s go away. CONSUMERS have much more power than they think. CASH still spends! Checks still spend. ONLY BANKS with 10 BILLION dollars in assets are affected so dry your eyse is you are crying for the banking industry. They WILL try to find a way to sneak in a fee just be on your toes and do not give in to paying a fee to use your own money!

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