If you are not aware, Mastercard, Visa currently charge some nasty fees to retailers every time you use your debit card. Same is true for credit cards. The Federal Reserve has proposed some new rules on debit card fees. They propose to cut transaction fees to 12¢ per transaction. Currently it costs retailers 44¢ on every single use of a debit card for purchases. The Federal Reserve also proposed to kill the debit transaction network monopoly system. A transaction network is where your data goes in order to debit your bank account after you swipe that plastic.
The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). Under both alternatives, circumvention or evasion of the interchange fee limitations would be prohibited. The Board also is requesting comment on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention.
If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011.
The proposed rule would also prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The Board is requesting comment on two alternative approaches: one alternative would require at least two unaffiliated networks per debit card, and the other would require at least two unaffiliated networks per debit card for each type of cardholder authorization method (such as signature or PIN). Under both alternatives, the issuers and networks would be prohibited from inhibiting a merchant's ability to direct the routing of debit card transactions over any network that the issuer enabled to process them.
According to Reuters, the debit card fee biz is $20 billion a year. Visa and MasterCard also have a lock as the networks that process the transactions.
Debit plastic is the #1 method of payment in the United States. As you can imagine, being charged 44¢ every time someone wants to pay for something, is quite a private tax, or toll to simply do some business.
CNN is reporting BoA is going to lose $1.8 billion on $2.3 billion in debit card transaction revenues.
Both Visa and Mastercard, the processing networks, stock tanked today on the news.
Score one for small business! These fees are forced to be paid by small businesses and even worse, they get hit with late fees and all sorts of squeeze obnoxiousness to accept Mastercard, Visa and debit cards for purchases.