You are here: Home » Banking News

US debit card swipe fee capped at 12 cents

June 9, 2011‐ US

A landmark endorsement was made by the Senate recently when it approved the capping of the debit card swipe fee at 12 cents. Earlier the fee was about 44 cents. This is a relief to small businesses across the street who don’t have the bargaining power as the big malls.

Small business owners have to pay 44 cents every time a customer offers a debit card to pay at their store. The 44 cents actually go to the bank who uses the funds to maintain the payment network and transaction security. However with reports clearly pointing out that this fee is way too much than what is actually spent, various advocacy groups came forward pressing pressure on the politicians to restrict the huge fee collection. In fact, banks earn as much as $15 millions every year solely on swipe fee. With US moving more towards debit cards than credit cards, the impact is now more than ever seen.

Effective July 21, 2011 the swipe card fee will be capped at 12 cents a transaction. This improves the profit margin for the small retailers. However, it is not yet visible if the fee cut comes to an advantage of the consumers. Consumers will not get benefited by this unless the prices of the goods they purchase get cheaper.

Also, there might not be immediate passing off of the benefit. More importantly, the swipe fee cut will mean banks will lose a substantial part of the $15 million they are making. And to cover this up, banks would serious consider cutting the freebies and begin to charge for some services. The first few charges that would make banking burdensome include removal of free checking, charging for online banking, eliminate rewards programs, charging annual fees for debit cards or directly levy point-of-sale fees for debit cards. So some lobbyists say that reduction of swipe fee will actually hurt consumers in the long-run.

A report from RBC Capital Markets says that estimate 80% revenue hit to fees of the banks will become inevitable once the new fee comes effective.

Bookmark and Share

Other top banking news


Comments


Search this site