By  Updated on Wed Jun 29, 2011

Fed Raises Debit Swipe Fee Cap to 21 Cents

 

The Federal Reserve has come to a final decision on the debit interchange fee cap, which will now be at 21 cents per transaction.

The debit interchange fee, which is paid by merchants to banks for every purchase made with a debit card, was originally to be capped at 12 cents. The 21-cent cap is nearly double from previously expected, but still lower than the current average of 44 cents per transaction.

An ad valorem amount of 5 basis points is attached to the base component fee cap of 21 cents. The amount will vary on the average per-transaction fraud losses of the median issuer. Banks are estimated to be subject to an average debit interchange fee cap at 24 cents.

The rule will take effect on October 1. This date is roughly nine weeks later from the scheduled enactment date of July 21.

Banks have made major changes to their debit card business model to account for the revenue loss that would occur. They included cutting free checking accounts, ending debit card rewards programs, and imposing new debit card fees.

Debit card issuers estimated that a 12-cent limit would lead to an annual loss of $14-16 billion. The higher fee caps may convince banks to take less drastic measures to compensate for lower profits.

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Post a Comment

  • Olivier

    what about PayPal?

    • http://www.mybanktracker.com Simon Zhen

      PayPal has said that their customers should see no major impact. The company expects to enjoy the lower debit costs.

    • http://www.mybanktracker.com Simon Zhen

      PayPal has said that their customers should see no major impact. The company expects to enjoy the lower debit costs.

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