Bloomberg reports the probability that major networks Visa and MasterCard will face a merchant backlash when they raise debit-card swipe fees on the smallest purchases to the maximum allowed under U.S. caps that take effect next week. Both networks will reportedly impose the highest fees permitted on all debit transactions, including so-called small-ticket purchases, for cards issued by the biggest U.S. banks according to an analyst at Janney Montgomery Scott LLC.
The networks currently charge retailers 1.55% of the purchase price plus 4 cents for small-ticket transactions of less than $15. That comes to about 7 cents for a $2 cup of coffee. The cost to merchants for that item would more than triple under rules created by the Federal Reserve, which capped the fees at 21 cents, plus 5 basis points of the total and a conditional 1 cent for fraud-prevention. About 20% of all debit-card purchases are small-ticket. The new fee structure won’t apply to cards issued by banks and credit unions with less than $10 billion in assets, which are exempt from the law, a provision of the Dodd-Frank Act.
A representative of the Electronic Payments Coalition points out in the article the balancing act done by Visa and MasterCard to keep both issuers and acquirers happy. But with the advent of the Durbin debit interchange controls mandated by Congress, the Coalition points out the expected small purchase price hike as one of the unintended consequences that result when the government steps in and pretends to know better than the free market.
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