Swipe Fees: Banks Win, Stores Lose

As we reported a few days ago in Fed To Cast Final Vote on Debit Card Fees, the Federal Reserve was poised this week to nail big banks by radically reducing the fees they collect for processing debit card transactions. So-called “swipe” or interchange fees now average 44 cents per transaction, but were set to drop to 12 cents. That would have been a boon for the merchants shouldering the expense and a bust for the banks, which according to the Federal Reserve, now take in around $20 billion from these fees. After a final vote on June 29, the new rules were slated to go int effect on July 21.

As has happened with the banking industry on so many occasions and in so many ways, however, they managed to dodge a bullet – at least partly.

After months of intense lobbying to convince the Fed that 12 cents isn’t enough to profitably process debit card transactions – and threatening to replace the lost revenue by raising fees on things like checking accounts – banks managed to cajole the Fed into capping rates at 21 cents. Banks can also charge .05 percent of each transaction as reimbursement for fraud losses, and the Fed is still considering allowing them to collect another 1 cent per transaction if they take steps to prevent fraud. Finally, the start date was also pushed back from July 21 to Oct 1.

If there’s any doubt as to whether this was good news for credit card processors: Visa’s stock closed Wednesday at $86.57/share, up $11.29 or 15 percent. MasterCard finished the day at $309.70/share up $31.47, or 11 percent.

Of course, most major banks that will benefit from the Fed’s generosity already starting raising fees months ago on checking accounts and other products in anticipation of this revenue setback.

Now that they’ve scored a multi-billion dollar victory at the expense of retailers, will they start announcing roll-backs of recent fee hikes?

I wouldn’t hold my breath.