The Federal Reserve has proposed a plan to reduce the current cap on swipe fees for credit and debit cards from 21 cents to 14.4 cents. However, the National Retail Federation (NRF) suggests that, based on recent formulas for setting swipe fee prices, it should be closer to 10.5 cents per transaction.
“We are very appreciative that the board has undertaken to update the interchange rate so that it will no longer depend on data that is now 15 years old,” NRF Chief Administrative Officer Stephanie Martz wrote in a letter to the Fed’s Board of Governors. “The economic factors that were considered by the Board when it originally set the maximum allowable interchange rate for covered issuers in 2011 based on 2009 data have changed dramatically.”
The NRF’s argument is based on the average costs banks incur to process a payment. The existing cap of 21 cents per transaction dates back to 2011 when Congress passed the Durbin Amendment, which tasked the Fed with ensuring that swipe fees were reasonable and proportional to banks’ costs.
The cap was initially set at 2.7 times the average cost for banks to process a payment, which was 7.7 cents at the time. The Fed’s research shows that banks’ average costs have decreased to 3.9 cents by 2021. However, despite this decrease, the proposed new cap would be 3.7 times higher than banks’ average costs, which the NRF considers excessive.
Ignoring the Benefits
Many industry experts believe the NRF is overreaching.
“The NRF refuses to acknowledge that their members derive significant benefits from accepting debit cards, such as guaranteed funds (compared to checks), faster transaction times at the point of sale, linking of cards to loyalty or rewards for customer marketing purposes, mobile checkout, omnichannel commerce, and reduced risk and cost of handling cash,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “That removes any kind of logical argument about why fees should be lower other than ‘the banks are making too much money.’”
Reduced debit fees under the Durbin Amendment have saved retailers $9 billion in fees since 2011. But the NRF’s claim that 70% of these savings have been passed back to customers in the form of lower prices is not supported by any available data on consumer prices or trends.
The NRF argues that the swipe fee reduction is justified because fees reached an all-time high of $172 billion in 2023.
“This is not due to an increase in rates, which have been fixed since 2011, but due to the popularity of debit cards with consumers and the increased frequency of use,” Apgar said. “The NRF won’t be happy until debit cards cost $0 for merchants to accept.”