The Federal Reserve Board will meet on Oct. 25th and is scheduled to take up the issue of lowering debit card swipe fees, also known as interchange fees. Retailer associations like the Retail Industry Association (RILA) and the National Retail Federation (NRF) have welcomed the decision to address what has been a nagging problem. The Association For Convenience & Fuel Retailing (NACS) has been at the heart of a grass-roots campaign to address a change.
It’s About Time
“Today’s action by the Federal Reserve to begin the process of lowering the interchange rate on debit transactions for all merchants is a long day in the making and is strongly supported by RILA,” said RILA Executive Vice President, Government Affairs Austen Jensen when the news broke on Oct. 17. “Over the past 12 years, the largest financial institutions in the country have seen their costs decline and their margins explode. The decision today to adjust debit interchange rates to accurately reflect the actual costs that card networks and the largest banks bear should be applauded.”1.
Retailers have argued that banks’ costs to process transactions have come down dramatically in recent years but that fees have not gone down but have continued to climb.
“Congress told banks a dozen years ago that debit card swipe fees should be ‘reasonable and proportional’ but they’ve never been either,” said NRF Chief Administrative Officer and General Counsel Stephanie Martz. “It’s time to set the cap that Congress intended and recognize that banks’ costs to process transactions have dropped significantly. Doing so would reduce costs for retailers and give them more savings to share with their customers by holding down prices in a time of inflation. These fees have been too high for too long and we’re glad to see the Fed is finally ready to act.” 1.
The NACS campaign
Earlier this year, the NACS urged C-store retailers to support the Credit Card Competition Act. The bill was introduced by Senators. Richard Durbin (D-Ill.) and Roger Marshall (R-Kan.) in July to create more competition in the market of swipe fees.
Bringing down the cost of swipe fees will affect small businesses most significantly. Having narrow profit margins and limited ability to negotiate costs, they are the hardest hit by inflated swipe fees.
Credit and debit card swipe fees have more than doubled over the past decade, increasing 25 percent in 2021 to a record $137.8 billion.
The fees are most merchants’ highest operating cost after labor and drove up consumer prices by about $900 a year for the average family last year.
Visa and Mastercard, which control more than 80 percent of the credit card market, centrally set the swipe fees charged by banks that issue cards under their brands and those banks do not compete with each other on price…2.
Look for New Policy
Clearly, the momentum in the industry and Congress is moving toward finally addressing the issue of unnecessarily high swipe fees. Exactly how changes are implemented may not be entirely clear at the moment.
It’s most likely that legislation will force more competition to the market that Visa and Mastercard dominate. Instead of legislating a fee limit, introducing new competitors should still create an environment where unnecessarily high fees won’t be tolerated.
1. csnews.com
2. csnews.com
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