Fed Must Adjust Interchange Rates to Reflect Actual Costs
Debit Interchange Rate Costs for Banks Have Plummeted
- By [ Austen Jensen ]
- Washington, DC
- 10/23/2023
“Current debit transaction fees paid by merchants are outrageously disproportionate to the actual costs incurred by issuers. Card networks and the largest banks are charging all merchants $0.22 per transaction yet it costs them $.039 per transaction to process.
“Congress directed the Fed to ensure the rate for debit transactions is reasonable and proportional to the costs incurred by the largest banks. The data overwhelmingly proves that the current rate needs to be lowered. Retailers are working with the Fed as they start the regulatory process to make this happen, and we are confident that the basic math makes this action inevitable. Merchants shouldn’t be forced to pay such absurd mark-ups to simply accept debit cards.”
Quick Stats:
FACT: The transaction costs for the largest banks have fallen almost 50% since 2009, when the first report showed ACS costs were $.077 and now a decade later come in at $.039. But they are still able to charge almost 600% more per transaction.
FACT: In 2019, the base interchange fee exceeded the actual ACS costs for 78.6% of financial institutions over $10 billion dollars and 99.4% of covered transactions.
FACT: From 2012-2019, covered issuer interchange revenue rose by 50% while average ACS costs for covered issuers fell by 23%.
FACT: Because the interchange caps exceed average ACS costs and fraud is a profit center for issuers, covered banks have been allowed to overcharge an estimated $11.4bn annually.
Source: Federal Reserve Reg ii Report (2019).
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