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At POS in the USA the Dodd-Frank Act increases savings from debit cards

In the Dodd-Frank Act, the Federal Reserve Bank was tasked with setting debit card swipe fees that are reasonable and proportional to the issuers costs. This applies to banks with assets of >$10bn which cover around 70% of debit card volume. The Durbin Interchange Amendment to Dodd-Franck was based on finding that the average cost per transaction to the bank issuers was some 4¢ and that the banks' average swipe fee was 44¢. Durbin proposed an allowable fee of 7-12¢. The banks are not happy about the new debit interchange charges which began on 1 October 2011.

The difference now between cost per over the counter payments are now quite stark. An example in the important 'Secrets of the Payment Processors' joint presentation (from Chuck Phipps - NetSpend, Anita Stevenson Patterson - Cox Enterprises, Dean Seifert - Vantiv and Travis Soto - Merrick Bank) at AFP's Annual Conference showed that a credit card can now be six times more expensive than a debit card, and 13 times more expensive than an ACH debit.

Comparative Costs for Merchants

In this example, it is important to note that:

  • many cards would be more expensive, e.g. rewards cards, Card Not Present transactions, corporate cards
  • in Dodd-Frank debit card caps only apply to issuing banks with $10bn+ in assets
  • ACH debits don't come with an authorization, so there is an increased risk of fraud and payment refused due to Not Sufficient Funds (NSF).

The big banks are furious at the loss of income from debit cards. The $10bn+ asset banks are introducing debit card charges, e.g. BofA Merrill have introduced an annual fee $5.

There is now an even bigger incentive in the USA for retailers to encourage payment at POS by debit cards and ACH debit, and away from credit cards.

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