Cutting Debit Fees Helped Economy

Swipe reform put $5.8 billion in consumers' hands through lower prices, says MPC report

Card Swipe

ALEXANDRIA, Va. -- A new economic report released by the Merchants Payments Coalition (MPC) shows that debit-card swipe fee reform gave a much-needed boost to the U.S. economy in 2012, as anticipated by Congress when it passed debit reform legislation in 2010.

Reducing the cost for merchants to swipe debit cards put $5.8 million back into the hands of consumers through lower prices, which led to increased spending and helped create 37,501 new jobs, according to the MPC report.

The MPC, of which the National Association of Convenience Stores (NACS) is a founding member, is fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.

"It turns out that the Main Street merchants, consumer groups and members of Congress that all pushed for debit reform were right," said Lyle Beckwith, senior vice president of NACS. "The Durbin Amendment has been a victory for both consumers and hundreds of thousands of American businesses."

Robert Shapiro of Sonecon LLC conducted the study. It examined debit card swipe fee reform required under the Dodd-Frank Wall Street Reform and Consumer Act. The study is being released on the second anniversary of the implementation of the Durbin Amendment, part of the Dodd-Frank legislation. The report findings include:

  • When debit swipe reform went into effect in October 2011, the average debit swipe fee on cards from covered banks dropped from 48 cents to 24 cents per transaction, saving consumers $5.8 billion in lower costs for goods and services and saving merchant businesses $2.6 billion in 2012.The savings in turn supported 37,501 new jobs.
  • These savings and job gains, however, could have been substantially larger had the fee been cut to 12 cents as originally recommended by the Federal Reserve. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion in merchant savings and 17,824 more jobs would have been created.
  • If swipe fees for all credit-card transactions had been held to the same level as debit fees in 2012,consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which would have supported 98,600 new jobs per year.
  • With both debit and credit reform in place, consumers and merchants would have realized total annual savings of $34.9 billion, creating a total of 153,976 jobs every year.

"Putting an end to the great swipe fee rip-off will make a significant dent in unemployment at a time when every job counts," said Dave Carpenter, NACS chairman and president and CEO of J.D. Carpenter Cos. Inc. "In addition, small business owners, who historically have been the primary drivers of job creation in the U.S., will also have more cash on hand to invest in their stores and new hires."

"Without reform, these swipe fees will continue to drain consumer and merchant spending power and ultimately will slow down a full economic recovery," said Carpenter.

An additional finding of the study showed that if Visa and MasterCard had not increased debit card swipe fees on small purchases as a way of taking advantage of the Federal Reserve's mistakes consumers would have saved another $690 million in 2012, supporting an additional 3,044 jobs.

Recently a lower court judge ruled that the Federal Reserve did not implement the Durbin Amendment as the law required and ordered it to further reduce swipe fees on debit cards. The Federal Reserve has appealed the decision.

MPC also has released state-by-state numbers for consumer savings and jobs with swipe fees reduced to 24 cents for both debit and credit cards and to 12 cents for debit cards. MPC took the findings in Dr. Shapiro's report and distributed them proportionally to all 50 states' share of the U.S. gross domestic product.

Credit-card swipe fees, which can be as high as 4% of the transaction, are now the second highest operating expense for merchants, after labor. With retail profits operating on the slimmest of margins, there is no room for merchants to absorb this expense. Consequently, the fees are passed along to consumers, who end up paying more for goods and services even if they pay by cash or check.

Swipe fees have tripled in the United States in the past 10 years, generating around $50 billion for banks annually, when the actual cost of card transactions has been falling. Swipe fees in the United States are the highest in the industrialized world. In Europe, the merchant cost to swipe is eight times less than in the United States even though the cost to the credit card industry is the same. Meanwhile, Visa and MasterCard control 80% of the marketplace and are allowed to set fees in secret with no accountability for competitiveness and transparency.