Retailers might be freed now from the fees on swiping cards

[Sunday, March 13th, 2011]

Retailers from Greater Hartford and various other small business owners will be relieved to know that one of the biggest costs in the business will not trouble them anymore. However, these savings from small business owners is directly from the pockets of banks which now have to look elsewhere for recovering their lost revenues.  According to the proposal from Federal Reserve Board in December, there are plans to significantly lower the interchange fees on debit cards. This is called the swipe fees which merchants have to shell out to the banks and card issuing companies for processing electronic transactions every time the customer pays through a credit card.

This swipe fees is currently at about 2 – 2.5% and is charged on every single debit and credit card. The new rules would be applicable only on the debit cards for the time being. The debit swipe fees would be capped at about 12 cents per every transaction, which is substantially lower than 80 – 100 cents that was charged per transaction on the debit cards until now. According to estimations from the Fed, the transactions will be lower by 70% on average once the new rules come into effect towards the end of July.

According to experts, any sort of reduction in the swipe fees can be considered huge, and it will change things a lot at the end of every month.

At most retailers and restaurants for example, 75 – 90% of all the transactions are either through debit or credit cards. The interchange is amongst the biggest expenses and it was rising fast. More importantly this transaction fees is very hard to track consistently. That is because the interchange fees was different from one card to another, from one card issuers to another and also on the basis of the transaction size and the process of entry into the system.

In fact, this cost was considered a lot for restaurants which usually run on narrow margins. Debit cards draw funds from the account of the customer which is why merchants have been arguing against such a huge transaction fees. That is because it is quite close to paying by cash or check compared to paying by credit card. The risk of fraud is also much less. Hence, debit cards according to merchants shouldn’t be in the same category as credit cards. This is why things are going to change a lot in July.

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