Interchange Fees – The Fight Over Loose Change

The 12 rounds of boxing between the Government and the banking industry seems to be headed towards the 13th round. The new law known as the Durbin Amendment reduces the interchange fees for debit transactions down to a flat 12 cents instead of the ~1.14% average fee of the sales price. In typical fashion, the banks are finding other ways to recoup these potential losses. Even though Republican Congresswoman Shelley Moore introduced legislation on March 16, 2011 to delay the Durbin Amendment until a comprehensive study could be performed, banks are going on the offensive. JP Morgan Chase announced on Monday, March 21, 2011 that they will no longer offer debit-card rewards for the majoirty of its customers in July. The elimination of the debit-card rewards program by Chase was reported by Bloomberg. The July cutoff is no coincidence as the flat interchange fee becomes law on July 21, 2011.

The below infographic provides both sides of the story. On one hand there are people that believe the reduction in fees will lead to cost savings for the consumer. While others will point to the reduction of interchange fees in Australia in 2003 and how the Aussies never saw an uptick in the economy or reduction in the costs of goods and services. In actuality many Australians complain that prices stayed the same, while they did see an increase in banking fees, loss of free checking, and the elimination of debit-card rewards programs.

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Interchange Fees

Interchange Fees

Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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  • unique___perspective


    Lots of bad data.  I bet that Apple pays HALF that in merchant account fees.  Whomever created this, probably a student or a teacher, has either bad information or is flat out lying about certain fees and the structure of how bankcard fees are really handled.

    Aesthetically pleasing, yes, however very incorrect, dangerously incorrect even.


  • The interchange rates are in large part made up of risks. One major risk is the cost of credit card and debit card fraud. The Durbin legislation comes in at a time when technology is able to reduce a substantial portion of this risk of card duplication. With the introduction of the PIN and chip technology duplication has now become much harder requiring a level of technology that is much higher than the technology required to copy magnetic strips.
    So while the banks lost revenue prediction are probably valid here, it’s the drop in cost of transaction that will maintain the banks profitably as this new card technology along with newer POS terminals get introduced.

    I think the banks profit for this service will probably rise to new levels within the next few years.     


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