Normally, if a debit transaction is approved, payment is guaranteed because debit cards don't bounce. But now banks are faced with new rules that will restrict how much they can charge merchants for debit transactions, erasing billions of dollars in revenue.
To make back some of that money, [image-nocss] banks are weighing whether to divide debit-card services into components and charging for them separately--known as "unbundling." For example, if merchants want a guarantee of payment, as approved debit transactions currently offer, that would cost extra.
While details on how unbundling may be implemented are yet to be worked out, merchants would pay a fee for the guaranteed payment feature if it is enforced. It isn't clear if consumers will pay a penalty fee similar to that on a returned check for a debit transaction that bounces.
In December, the Federal Reserve proposed as part of an overhaul mandated by the Dodd-Frank law capping debt-transaction fees for large banks at 12 cents, down from an average of 44 cents. The proposed limit on debit fees would drain $15.2 billion a year in revenue from the industry, Robert Hammer, who runs R.K. Hammer, a credit-card consulting firm in Thousand Oaks, Calif., told the newspaper.
Banks are leery of discussing specifics of their strategies and say they are considering many options.
"We've helped develop the debit-payment mechanism, and someone saying, 'We don't want to pay for that,' forces us to rethink things," Joe Price, Bank of America Corp.'s head of consumer and small business banking, said in recently.
Bank of America, Wells Fargo & Co. and J.P. Morgan Chase & Co. are already beginning to revamp debit programs, the newspaper reported. Changes include axing debit rewards and adding new fees to checking accounts. Some banks also are considering increasing their issuance of prepaid cards, a form of plastic similar to debit cards but excluded from fee limits in the new federal rules. Other possible changes include curbing the number of debit-card transactions customers can make each month and restricting the size of a transaction with a debit card.
Meanwhile, more than 100 small-business owners from across the country will gather in Washington, D.C., this Thursday to urge Congress and the Federal Reserve to protect commonsense swipe-fee reform as passed by Congress last year. Senator Dick Durbin (D-IL), Hank Armour, president and CEO of NACS and Todd McCracken, president of the National Small Business Association, will also participate.
As the Fed works to establish rules guiding implementation of last year's regulation, the big banks and credit-card companies are aggressively lobbying to weaken reform in a last ditch effort to retain their perks and profits, according to Reform Swipe Fees NOW! Small business owners, however, refuse to back down.
"I have owned my small business for almost four decades," said Dennis Lane, national spokesman for Reform Swipe Fees NOW! and a 7-Eleven franchise owner. "Year after year, I have seen these fees continue to rise and prevent guys like me from lowering prices, expanding business or strengthening a local economy. Enough is enough! We have got to protect the reforms that Congress passed."
The gathering will begin at 9:30 a.m. Thursday, March 10, on the west front grassy area of the U.S. Capitol building in Washington.
Reform Swipe Fees NOW! is a project by the Retail Industry Leaders Association. The project unites U.S. business owners, small and large, in a campaign for fair debit- and credit-card swipe fees.
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