This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Consumers Pay for the Loss of Debit-Card Swipe Fees

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

NEW YORK ( TheStreet) -- In Wall Street's latest battle over debit cards framed as a David vs. Goliath clash between small-business owners and the large banks, the real loser in the fight is the American consumer.

The Federal Reserve announced this month its final regulations that will cap debit-card swipe fees charged to merchants at 21 cents per transaction. While financial institutions argue that they stand to lose as much as $10 billion to $14 billion per year in revenue collected from merchants, the merchants insist that the 21-cent cap does little to alleviate their financial plight.

For financial institutions, the 21-cent cap is preferable to the original proposal of a 12-cent per transaction cap that would have cost the industry almost 75% of the income received prior to the rule change. Keep in mind that even at the proposed 12-cent cap, the profit margin is still 70% for the lender. This is hardly small change when considering that Americans now use debit cards more often than credit cards, checks, or cash, according to a 2008 Survey of Consumer Payment Choice. This is still a hefty profit placed on the primary way in which consumers choose to make their purchases.

The industry currently claims an average debit-card swipe fee of 44 cents, thus imposing a 21-cent cap would greatly diminish their profits. But as every lawyer and financial expert knows, it's all in how you crunch the numbers.

In fact, the new rules allow another 0.05 percent of the value of each transaction to be tacked on to cover fraud prevention, so analysts estimate that that will bring the average swipe fee up to 24 cents. Before the new rules, debit card issuers charged a swipe fee of one to two percent of the value of the transaction.

The impact of these new regulations on the consumer will most likely be slow and subtle. Over time, the financial institutions will no doubt phase in fees or cut programs in an effort to recover whatever revenue was lost.

Higher ATM fees, lower limits on debit cards or simply doing away with free checking are all possibilities, as is the implementation of a debit card swipe fee passed directly to the consumer. Simply upon hearing of impending debit card swipe fee reductions, major lenders such as Wells Fargo (WFC), JPMorgan Chase (JPM), and SunTrust (STT) either eliminated or greatly curtailed their rewards programs.

Consumers also can only take it on faith that reducing the cost of operating a business for retailers will translate into lower prices at the register. If the past is a dependable forecaster of the future, this has rarely been the case. In these battles of financial power plays, where every side claims to be the victim, both David and Goliath tend to walk away pretty much unscathed.

The American consumer usually carries the brunt of the battle scars.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.64 -0.11%
FB $118.57 0.84%
GOOG $698.21 0.75%
TSLA $241.80 0.43%
YHOO $36.53 -0.19%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs