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Retailers Passing Swipe Fee Savings On to Customers

[Wednesday, December 4th, 2013]

Since debit card swipe fee reform was passed in 2011, retailers have saved billions of dollars in fees—and a new study says they are passing those savings on to their customers.

The Durbin Amendment put a cap on interchange fees—also called swipe fees—that are charged to merchants whenever a customer uses a debit card to pay for a purchase. Interchange fees are charged on both debit and credit card transactions and amount to an average of 2 to 3% of each purchase. These fees are the reason that many retailers have a minimum purchase amount in place for anyone who wants to pay by card.

Although credit card swipe fees are still being battled over, with a years-long antitrust suit still haggling over settlement offers, debit card swipe fee reform has gone through without a hitch and appears to be saving consumers money—at least according to a study authored by Robert Shapiro, a former Bill Clinton advisor and celebrated economist. “The Costs and Benefits of Half a Loaf: The Economic Benefits of Recent Regulation of Debit Card Interchange Fees” was written by Shapiro for the Merchants Payments Coalition, which was created by the National Retail Federation.

$8.5 billion in 2012 alone, $5.87 billion to consumers

During the first full year that debit card swipe fee reform was in effect, retailers kept $8.5 billion in their registers that would have gone to banks and card issuers. Of that amount, $5.87 billion in savings was passed on to consumers, according to the report. That savings meant an increase in demand for products and services, which meant job creation and a boost for the economy. In 2012, 37,500 new jobs were created—both in retail and in other industries.

Could have gone lower

Although the news that consumers are receiving savings as a result of finance reform is welcome, the report stresses that the news could have been even better. Congress urged the Federal Reserve to make the swipe fee cap even lower, which it refused to do. The report says that if the cap had indeed been lower, the savings to both retailers and consumers could have been even greater.

Congress recommended a cap of not more than 12 cents per transaction, but the Federal Reserved bowed to bank industry pressure and instead set the cap at 21 cents per transaction. The NRF claims that the savings to retailers could have been $12.5 billion instead of $8.5 billion, and 55,000 new jobs could have resulted, instead of 37,500.

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