Will Swipe-Fee Reform Save You Money?


NEW YORK (MainStreet) – So far, the debit card swipe-fee reform brought about by the Durbin Amendment has been a net loss for consumers. The new regulations, which cap debit card interchange fees at 21 cents per transaction, have cut into big banks’ profits, and many have responded by eliminating free checking accounts for customers. In addition, Bank of America earlier this month became the first major bank to officially institute a debit card fee, announcing plans to charge customers $5 for any month in which they use their debit card at a merchant.

But according to the retail industry, what consumers lose at the bank they’ll make up for at the cash register.

Responding Wednesday to legislation that would reverse swipe-fee reform, the National Retail Federation, an industry group, said that undoing the reform “would cost consumers more than $6 billion a year in savings that merchants plan to pass along to their customers.”

There’s no doubt that the reform will save the retail industry billions. Prior to the new regulations that took effect this month, banks charged retailers around 1%-2% for every transaction made using a debit card, and by some estimates the average transaction cost retailers 44 cents. With that surcharge slashed in half, retailers can indeed expect to reduce costs dramatically.

Whether they can be expected to pass those savings along to consumers in the form of higher prices is another matter entirely.

“The retail industry is very competitive, and if one retailer doesn’t pass the savings along, a competitor will,” insists NRF spokesman J. Craig Shearman. He estimates that the reform will save consumers $80 to $90 a year, and says that the difference will be most striking when it comes to big-ticket items. A $500 washing machine, for instance, previously cost retailers an extra $5-$10 when customers made a purchase with a debit card; with that lowered to a mere 21 cents, customers can expect to pay less at the register.

But followers of the industry say that expecting retailers to pass along a significant chunk of those savings to customers is naïve.

“We expect that savings will be very minimal to consumers,” says Mary Gotaas, industry research analyst for research firm IBISWorld. “Many of the retailers have slim profit margins, and retail industries have struggled during the recession, so the savings will mostly take the form of higher profits.”

Gotaas adds that some retailers will instead opt to put the cost savings toward improved facilities and services, so the reform could benefit shoppers in places other than the price tag. But even in cases where the cost savings are put toward lower prices, it may not be very noticeable to the average shopper.

“Prices are going up anyway on consumer products, so what may seem like the price being the same is actually retailers lowering prices slightly,” Gotaas says.

Whatever happens, though, consumers are unlikely to see any practical effect until after the holiday season has passed. Shearman says that retailers don’t see what they’ve lost to swipe fees until the end of the billing cycle, so it will be at least a few months until they’re able to determine what they’ve been saving and make any price adjustments accordingly.

We’re not going to hold our breath, though.

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