It has been an interesting summer for those that follow the ongoing swipe fee battle. First the Visa and MasterCard retail credit settlement, then Judge Leon’s ruling on the debit fee cap. A quick and simple summary to get us all up to speed:
- Banks used to charge merchants interchange (a percentage of the total transaction) for accepting debit cards at a lower rate, but similar to how credit cards were priced.
- Interchange is a risk-based pricing model and most (not the banks) thought that wasn’t fair because debit transactions are good funds -- no lending, little risk.
- Congress took action and the Durbin amendment was passed.
- The Federal Reserve (Fed) studied and sought opinion and came out with a cap of $0.21 per swipe in 2011 -- about $0.23 less than what they used to cost.
- Fast forward two years, and the new pricing scheme is pretty well understood and accepted in the market. Then Judge Leon says -- wait a minute, Congress thought it should be $0.12 per swipe. The Fed appealed the ruling and everyone in payments is again talking about debit.
The technical and banking infrastructure to accept electronic payments is large and immensely complicated. The fact that it now costs less than half (on average) of what it once did just a few years ago is a great benefit to merchants, and no merchant wants to go back to the days of primarily cash and check. It’s just too efficient at the point of sale and for their business operations to accept plastic. They do want to pay a fair price -- no one likes to overpay or feel like the market is controlled. The interesting thing about the fact I just pointed out, is that the payments market is not controlled -- there are a large number of new entrants each year.
No one has been able to offer a secure, reliable and lower cost model than what the payment industry has today. I don’t think we will see the end of this in 2013, and it will be very interesting to see if the networks are pressured to make a voluntary price concession to avoid an even further decline. If you have an opinion on this or any other payment related topic, we would love to hear it.
Posted by Matt Mullen, Head of Product Management & Marketing and General Manager of Epicor Payment Exchange