Visa, MasterCard ‘Swipe Fees’ on Merchants Fall 45%: Fed

Average fees that big banks charge merchants for each debit card transaction on Visa, MasterCard or other networks have dropped from 43 cents to 24 cents, a 45 percent decline, according to new data from the Federal Reserve.
New limits on so-called interchange fees, or “swipe fees,” took effect Oct. 1, 2011– the result of a controversial provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The National Retail Federation said fees from the big banks have not fallen sufficiently.
The NRF and other merchant groups filed a lawsuit against the Fed in federal court in November, contending that the central bank set the limit for swipe fees nearly twice as high as what is allowed under Dodd-Frank.
The Fed’s cap now stands at 21 cents, “plus 0.05 percent multiplied by the value of the transaction, plus a 1-cent fraud-prevention adjustment, if eligible.”
“We believe the numbers for the big banks are too high and had the Fed followed the law there would be significantly greater savings for merchants and their customers,” NRF Senior Vice President and General Counsel Mallory Duncan said. “This is working the way the Fed set it up to work, but the Fed didn’t fully comply with what Congress required. This is better than paying the full monopoly prices we paid before but they are still partial monopoly prices.”
There were about 46.7 billion debit card transactions in 2011, with a value of more than $1.8 trillion, the Fed reported.
This represents a 24 percent increase from the number of transactions in 2009 (37.6 billion) and a 27 percent increase from the value of transactions in 2009 ($1.4 trillion).
Debit transactions authenticated by customer signatures represented about 63 percent of transaction volume in 2011; the remaining transactions were PIN (personal identification number) authenticated.
In addition to interchange fee revenue, some payment card networks provide incentive payments to card issuers for reaching specified volume thresholds, funding marketing activities that promote the network’s brand, and adding the network on the issuer’s debit cards.
Payment networks usually negotiate these incentive payments individually with card issuers.
In the fourth quarter of 2011, signature-based networks provided issuers incentive payments that averaged about 2 cents per transaction, down from about 3 cents per transaction in 2009, before the Dodd-Frank reform.
PIN-based networks provided incentive payments that averaged less than 1 cent per transaction.

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