Study: Debit Card Swipe Fee Reform Saved Consumers Money, Dropped 24 Cents Per Transaction

Oct. 1, 2013

A new economic report released by the Merchants Payments Coalition (MPC) shows that debit card swipe fee reform saved consumers and merchants billions of dollars in 2012, as anticipated by Congress when it passed debit reform legislation in 2010.

Reducing the cost for merchants to swipe debit cards put $5.8 billion back into the hands of consumers through lower prices, which led to sufficient increased spending to support 37,501 new jobs, the report finds.

"The facts are in and the numbers don't lie. Debit reform is helping consumers, and both consumers and the economy are big winners," said MPC chairman Mallory Duncan, senior vice president and general counsel of the National Retail Federation, in a prepared statement. "Debit card swipe fees are eating up less of consumers' purchasing power, and that has yielded significant savings. These are long-term benefits that will steadily boost the U.S. economy."

Internationally prominent economist Robert J. Shapiro of Sonecon LLC conducted the study. It examined the debit card swipe fee reforms required under the Dodd-Frank Wall Street Reform and Consumer Act. The study is being released on the second anniversary of the implementation of the Durbin Amendment, part of the Dodd-Frank legislation. When debit swipe reform went into effect in October 2011, the average debit swipe fee on cards from covered banks dropped from 48 cents to 24 cents per transaction, saving consumers $5.8 billion in lower costs for goods and services and saving merchant businesses $2.6 billion in 2012. The savings in turn supported 37,501 new jobs. These savings and job gains would have been substantially larger if swipe fees had been cut to 12 cents as originally recommended by the Federal Reserve Board. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion more in merchant savings and an additional 17,824 jobs would have been created. If swipe fees for all credit card transactions had been held to the same level as debit fees in 2012, consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which could have supported 98,600 additional jobs per year. With both debit and credit reform in place, consumers and merchants could have realized total annual savings of $34.9 billion, supporting a total of 153,976 additional jobs every year.

The report uses a 24-cent interchange fee for credit card transactions as a reference. The actual number could be higher or lower. The reference is well above the pending European Commission's proposal to cap credit card swipe fees at 30 basis points (i.e. 3/10 of 1 percent). At that level, the swipe fee on the average $40 retail transaction would be 12 cents. This figure was used as an objective example of the fees, savings and jobs that might result from credit reform but was not a statement as to what the most appropriate credit card swipe fee level would be.

"Putting an end to the great swipe fee rip-off will make a significant dent in unemployment at a time when every job counts," said Dave Carpenter, chairman of the National Association of Convenience Stores (NACS) and president and CEO of J.D. Carpenter Cos., Inc. "In addition, small business owners, who historically have been the primary drivers of job creation in the U.S., also will have more cash on hand to invest in their stores and new hires."

"Without reform, these swipe fees will continue to drain consumer and merchant spending power and ultimately will slow down a full economic recovery," said Carpenter.

An additional finding of the study showed that if Visa and MasterCard had not increased debit card swipe fees on small purchases as a way of taking advantage of the Federal Reserve's mistakes, consumers would have saved another $690 million in 2012, supporting an additional 3,044 jobs.

Recently a lower federal court judge ruled that the Federal Reserve Board did not implement the Durbin Amendment as the law required and ordered it to further reduce swipe fees on debit cards. The Federal Reserve has appealed the decision.

MPC also has released state-by-state numbers for consumer savings and jobs with swipe fees reduced to 24 cents for credit cards and to 12 cents for debit cards. MPC took the findings in Shapiro's report and distributed them proportionally based on each state's share of the U.S. gross domestic product.

Credit card swipe fees, which can run as high as 4 percent of a transaction's value, are now the second highest operating expense for merchants, after labor. With retail profits operating on narrow margins, there is no room for merchants to absorb this expense. Consequently, the fees are passed along to consumers, who end up paying more for goods and services even if they pay by cash or check.

Swipe fee revenues have tripled in the U.S. in the past 10 years, generating around $50 billion for banks annually, while the actual cost of processing a debit or credit card transactions has been falling. Swipe fees in the U.S. are the highest in the industrialized world. Swipe fees in Europe cost merchants one-eighth the cost to merchants in the U.S. Meanwhile, Visa and MasterCard control 80 percent of the marketplace and set the fees in secret so their banks won't compete on price. Report.

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