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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs