‘Swipe’ fees charged by credit/debit card companies are intended to cover the costs of moving money between a consumer’s bank and the merchant accepting the credit/debit card for payment. These ‘swipe’ fees cover authorization, clearing and settlement of the transaction, as well as the cost of consumer rewards programs, fraud, and profit to the banks and card networks.
US merchants pay nearly $80 billion annually to banks and credit card companies in ‘swipe’ fees. Ultimately, most of these fees hit consumers, estimated to amount to $400-$500 per year per consumer. ‘Swipe’ fees are now the second-highest operating cost, after wages and benefits, for convenience store retailers.
America’s Swipe Fees Are Much Higher than Europe’s
US ‘swipe’ fees are two- to three times higher than comparable fees in other nations that rely on electronic transactions. Today, Americans pay more in swipe fees than the rest of the world combined.
In June 2015, European Union antitrust rules enhanced competition and banned the type of price-fixing that is commonly utilized by US credit card companies. In the EU, credit and debit card swipe fees are capped at 0.3 and 0.2 percent respectively. These caps are dramatically less than comparable costs borne by Americans, even after Congress enacted debit ‘swipe’ fee reforms. “This [EU] legislation is good for consumers, good for business, and good for Europe,” said EU Commissioner for Competition Margrethe Vestager, who predicted “(i)t will lead to lower prices and visibility of costs for consumers.”
Debit Card Swipe Fee Reform
‘Swipe’ fees related only to debit card transactions were addressed by Congress in 2010 as an amendment to the Dodd-Frank financial services bill. Senator Richard Durbin (D-IL), persuaded his colleagues to direct the Federal Reserve (the Fed) to require banks with assets over $10 billion to charge debit card swipe fees that are “reasonable and proportional” to the costs incurred by issuers for electronic debit transactions. The “Durbin Amendment” enjoyed bipartisan support and was enacted into law.
The Fed subsequently issued regulations allowing large banks to charge a 21 cent flat fee per debit card transaction, a 0.05 percent fee based on the sale value, and a penny to cover fraud protections. The Fed previously estimated the cost of authorizing, clearing and settling such a transaction to be eight cents. Average fees per debit card transaction in 2015 were roughly 30 cents. Prior to implementation of the 2010 reform, the average fees per transaction amounted to 48 cents.
The Durbin Amendment took effect in the fourth quarter of 2011. As the Fed’s own chart shown below demonstrates, ‘swipe’ fees immediately, and dramatically, dropped:
Average Debit Card Interchange FeeSource: https://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm
Because the Fed’s rule only affects banks and credit unions with assets exceeding $10 billion, over 98% of US institutions are unaffected by the “reasonable and proportional” requirement. Banks and credit unions not covered by the regulation can charge unregulated debit card ‘swipe’ fees. The fact that less than two percent of the banks and credit unions involved in debit card transactions are regulated by the “Durbin Amendment,” yet ‘swipe’ fees have nonetheless decreased, suggests that the government intervention may be introducing competition to the debit card market, improving service to consumers.
Why is This Important to Andeavor?
Andeavor supplies over 3,000 branded fuel retailers. A large number of our retail customers purchase fuel and convenience store items with debit cards. Prior to these initial ‘swipe’ fee reforms, Andeavor typically could only choose one network to route transactions. These constraints advantaged the market-dominant players, which prevented competition for our debit card business. Since the 2010 reforms, competition appears to be increasing between banks and networks, allowing Andeavor to make business decisions that benefit our customers.
Andeavor urges Congress to sustain and protect its 2010 debit card swipe fee reform.
What Can I Do?
This session of Congress, legislation to repeal the Dodd-Frank Act was introduced by Rep. Jeb Hensarling (R-TX) which would have repealed the “Durbin Amendment.” Although this legislation cleared the relevant House committee, leaders removed debit swipe fee reform repeal language prior to the bill advancing to a vote by the full House. The removal of this provision from the larger bill, which was subsequently passed by the House, was a big win for gasoline retailers, other merchants and all their customers.
The House measure repealing the Dodd-Frank Act has not yet been considered in the Senate. If relevant legislation is debated that affects ‘swipe’ fee reforms, we will update this site.