Interchange: the Fed proposes a 0.12 dollar threshold for debit card transactions
- In compliance with the Durbin amendment in the Dodd-Franck Act, the US Federal Reserve Bank submitted its project on card interchange to consultation. This measure will be enforced on July 21, 2011. Comments are expected until February.
- Two options are to be chosen: the first, a general 0.12 dollar limit per debit transaction. The second would relies on the issuer's costs, assessed at a 0.07 dollar safe harbour, with 0.12 dollar limit, both likely to be revised. Each modality would result in a 70 à 80% drop in issuer income compared to 2009 average, or about 10 billion dollars.
- The Fed also forbids all rules likely to limit the number of networks used by merchants.
- Senator Richard Durbin indicated that current amounts would be three times higher than banks' current costs. The Merchants Payment Coalition communicates on an average 0.63 dollar paid by acceptors.
- Visa asked the Fed to take more time to reconsider its analyses. According to the card scheme, “the Federal Reserve’s proposal includes artificial caps on debit interchange that do not realistically reflect the value of card acceptance and do not reflect the actual costs of running a secure, reliable and efficient debit network”.
- This news is particularly important for retailers seeking to decrease banking transaction-related commissions. They have been fighting their consistent increase for years. According to them, this evolution goes along with the migration to PIN debit cards (to the detriment of signature cards).
- Will card issuers see their profit margin drop in the United States? This preoccupation is real, as shown by the decrease of their stock market price on the day this announcement was made. For sure, no one was expecting the Fed would intercede so fast and in favour of merchants. However, the Fed's proposals must still be subjected to general debates.