Debit-card swipe fees will fall soon, but the other implications of a federal judge's decision last week to throw out the 21-cent cap on debit interchange are only just beginning to become clear.
Retailers are happy at the prospect that new rules will take less of a bite out of debit transactions. And U.S. District Judge Richard Leon ruled that the Federal Reserve must come up with those rules in "months, not years." Even though Leon's decision is expected to be appealed, that suggests a fix is on the fast track.
Banks, not surprisingly, believe their financial sky is falling. The 21-cent cap already cut into their interchange revenue, and banks now face the prospect of the Fed's original proposal to implement the Durbin amendment to the Dodd-Frank financial reform law: a cap of only 12 cents per debit transaction. Some observers suggest that could make banks more selective in issuing debit cards, under the justification that they won't have as much money to spend on fighting fraud.
But banks have already tightened up their requirements for who they'll accept as a customer. Banks are also fighting hard against competition from the retailers who essentially replaced their store credit cards with payment cards from Visa (NYSE:V) and MasterCard (NYSE:MA), all of which route their payments through banks. For example, Walmart (NYSE:WMT) and Costco (NASDAQ:COST) offer their customers a variety of financial services, although Walmart has been singled out by bankers advising the Fed as a retailer who should be blocked from owning an actual bank, which would allow it to take deposits from consumers (something bankers seem less and less inclined to do).
Walmart and other chains are also working on MCX, a payment system that would effectively serve to revive the old store charge cards, but collecting the money via ACH whenever possible instead of through interchange-laden credit and debit cards. A reduction in the debit-card cap might make that less appealing, especially for chains where a large percentage of transactions are debit.
And consumers? The least likely consequence of a smaller debit cap would be consumer prices that actually fall, but even that isn't out of the question. At the relatively small number of stores that have taken advantage of their newly legalized ability to charge a separate "swipe fee" to cover interchange costs, a drop in debit interchange costs would mean the debit-paying customer's final total will drop as well.
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