For years, retailers have been lobbying congress to regulate the fees that Visa, MasterCard and their issuing financial institutions charge merchants when credit cards are used. These fees are often referred to as "interchange" or "swipe fees". To learn more about credit card fees, read our post Where do Credit Card Fees Come From?
During the recent financial crisis, Congress did just that when they passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July of 2010. The specific portion of the bill that regulates interchange is called the Durbin Amendment.
The changes are scheduled to go into effect on October 1st, 2011. The headline news is that credit card interchange fees are supposed to go down. However, as we've analyzed the bill and Visa and MasterCardis reaction, we think that it is likely that fees will actually stay the same for our customers. If there are indeed lower costs, we will be passing on the savings. With all the unknowns, which are outlined below, we're currently taking a wait and see approach before we consider any pricing adjustments.
Here is the information that we've been analyzing.
Bill specifics
The new regulations only apply to certain debit cards that have been issued by banks with $10 billion or more in assets, which is roughly 60% of all debit cards, but a much smaller percentage of overall transactions. Less than 10% of our merchant's transactions occur on debit cards that will be affected by the new regulations.
Visa / MasterCard Financial Institution Reaction
As expected, Visa and MasterCard and their issuing financial institutions have been quickly making adjustments to make up for the lost revenue. Here is what we've seen so far:
- They're increasing interchange fees on non-regulated debit cards
- They're increasing fees on credit cards in October 2011 and have announced additional increases that will go into effect in April 2012.
- Financial institutions affected by the legislation are working to shift customer usage away from the regulated debit cards to the unregulated and higher margin debit/credit cards. For example, many banks have announced that they've started charging customers a monthly fee for using a debit card.
With these changes, we expect overall regulated debit card usage to decline and non-regulated debit cards and credit card usage to increase. That, coupled with the increased rates on credit cards, we believe will most likely lead to a wash in overall fees. If that's the case, we'll be back to where we started.
We're following the situation closely and monitoring debit/credit usage and will post updates as we have more relevant information to share.