Debit card merchant and usage fees

FYI. As of this month, merchants will now be paying higher merchant fees for debit card transactions. The cost of transactions has jumped as of October 1, 2011 as merchants must now pay the maximum allowable fees under federal law for purchases under $15; 21 cents to 24 cents, instead of  6 cents to 7 cents per transaction. What does this mean? These fees may end up coming out of your wallet.

Debit cards have been under hot debate lately. At issue is the fee that retailers pay to banks to process electronic debit card payments, otherwise known as interchange fees. Previously, interchange fees were set by the payment card networks, such as Visa and Mastercard, as part of the contracts that allowed merchants and their banks to use the networks to process electronic payments. The networks argued that interchange fees helped pay for the electronic processing, fraud prevention and convenience that go along with accepting a debit card payment. Merchants used to pay interchange fees of about 1 to 2 percent of each transaction, or about 44 cents on the average purchase. Now, the credit card networks have eliminated the interchange fee rate schedules and the merchant discounts on small-dollar purchases and set all rates at the maximum allowed by law.

And if you think you might fair better opening a merchant account with a small regional bank, you might ask further into their policies. Apparently, banks with less than $10 billion in assets are exempt from the debit card swipe fee limits, but that doesn’t mean that they’re not opposed to charging fees. Thus, these small banks can charge higher interchange fees for using their cards, particularly as they’re finding it harder to generate loan income otherwise.

What about all the press on the ‘customers’ of banks paying more for using debit cards? That’s true too. Banks are now charging ‘activity fees’ for accessing your own money, the New York Times recently ran through a few banks’ fees as well. Check out the new debit card swipe fee rates in effect.

• Chase: $3/month service fee on debit card use.
• Wells Fargo: $3/month “debit card activity fee” charged to GA, OR, WA, NM and NV customers a part of a test program.
• Bank of America: $5/month for debit card use, starting in 2012. Cancelled as of November 1, 2011!
• SunTrust: $5/month for debit card use, starting in 2012.
• Citibank: No fee, as it would be a source of irritation for its customers.

President Obama is blasting Bank of America for charging fees. Banks are trying to defend their position. Retailers are on the road to discriminating against debit cards. And small businesses may end up scrapping credit card transactions all together in favor of cash. Regardless, accessing money this days costs money. Finding the most efficient way to do so is the name of the game, but at what cost to your business?

Photo courtesy of BizMology.

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