Debit Card Fees — New Tide in Merchant Fees
Written by: Kristy Welsh
Last Updated: July 25, 2017
Using a debit card to pay for groceries or gas has become a way of life for most Americans. A debit card, also known as a bank card or check card, provides the cardholder electronic access to his or her bank account and is an easy alternative to paying for things with cash. The use of debit cards is so widespread that you rarely ever see anyone writing a check at the check out counter. But this convenience does come at a price.
Statistics on Debit Card Use
According to a recent study released by the Census Bureau, it is estimated that there were roughly 52 million debit card swipes in 2014 with an estimated 191 million card holders. Some other debit card statistics:
- Nearly 80 percent of consumers under 30 years old use a debit card compared to 43 percent of consumers over 60 years of age.
- In 2014, total purchases using a debit card was over $2 TRILLION.
- Debit card usage grew 23 percent from 2012 to 2014.
Debit Card Fees Charged to Merchants
Though the average consumer is vaguely aware of this, merchants pay a fee when a consumer uses a debt or credit card. At one point in time, the average fee was 33 cents for a signature transaction and 26 cents for a PIN transaction. These fees were paid by the merchant to the bank or credit card company that issued that particular debit card. So of course, this fee is passed along to the consumer in the way of higher prices for goods and services.
Recently, in response to a declining economy, the government made some changes designed to help the small business owner lessen their cost of doing business and give the owner more money to use to hire workers.
Changes to Debit Card Swipe Fees
In response to the recession of 2008, President Obama signed into law the "Dodd-Frank Wall Street Reform and Consumer Protection Act" on July 12, 2010. Contained in this act is language which would put a cap on the fees banks and credit card companies can charge on debit card swipes. After much debate and stonewalling, the Senate finally voted in favor of the Federal Reserve caping the fees that stores must pay banks each time a customer swipes a debit card to 12 cents per swipe.
What Does Caping the Fees Mean to Merchants?
Putting a cap on swipe fees at 12 cents, means more money in the long run for merchants. Take for example an owner of a 7-11 store in Quincey, MA who now pays $7,000 to $10,000 annually in swipe fees. This amount will be cut down to $2,000 to $5,000 a year. That is a tremendous savings for a business owner which could equate to higher salaries, new employee hires, and cheaper prices.
What Does Caping the Fees Mean to Banks?
Suffice it to say, the banking industry was pulling out all the stops prior to this Senate vote. Lobbyists were in full force working both sides of the isle trying to convince them to vote against this measure. Why? Because this fee cut stands to loose them billions of dollars annually! Currently, banks make about $16.9 BILLION a year in fees. Under this new law, banks stand to LOSE $12 BILLION a year - do you feel bad for them?
Possible Response to the Fee Cuts
Sure, the merchants will save money by paying less in swipe fees, but now what are the banks going to do to make up for this loss in revenue? Don't think they are just going to say, "Oh well, I guess we can do without that extra income." Fat chance of that happening! The banks are already skeeming on how they can recoup this loss and who they are going to hit up for it.
And of course, it comes right back down to the consumer. Prior to the Senate vote, the banking industry was claiming they are going to have to make up for this loss in revenue by charging more for checking accounts, savings accounts, and in general, hiking up their already inflated banking fees. So basically, will the consumer actually win at all? They may pay less for that pack of gum, but then they will have to pay more to have a checking or savings account.