White Paper: While Issuer Costs Fall, Merchants Continue to Pay Outsized Share of Debit Transactions

Jan. 26, 2015

White Paper: While Issuer Costs Fall, Merchants Continue to Pay Outsized Share of Debit Transactions Issuers’ costs to process debit transactions have fallen 42 percent between 2009 and 2013, but the rate merchants pay banks to accept debit cards has remained far too high, despite Federal Reserve regulations implementing the Durbin Amendment in 2010 that put caps on debit interchange, according to a new white paper from the Merchant Advisory Group (MAG).

Last week, the U.S. Supreme Court refused to hear a petition by merchant groups that would force the Federal Reserve to revisit the Durbin Amendment rule implementing a 21-cent cap on debit interchange. Since shortly after its approval, merchants have been fighting the rule which, they say, leaves the fees they pay banks on debit transactions too high compared to issuers’ costs. According to the MAG white paper— Volume and Cost Trends in the Debit Card Industry —issuers’ self-reported costs to authorize, clear and settle debit transactions have fallen to 4.4 cents per transaction while the regulated rate merchants pay on debit transactions is “around 25 cents.”

The MAG is calling on the Fed, despite the Supreme Court’s decision to remain uninvolved, to take a fresh look at the cost of debit transactions and how much is borne by merchants.

“The MAG and our members are hopeful the Federal Reserve will reassess the appropriateness of their existing debit card standards. Market forces are still not working properly in the debit card industry as demonstrated by a lack of reduction in the network-set rates below the maximum allowable level despite significant cost reductions by covered issuers in the past five years,” said Mark Horwedel, CEO of the Merchant Advisory Group. “When a product or service that cost no more than a nickel or dime over twenty years ago—and has seen significant improvements in technology and increases in volume—skyrockets to almost ten times that amount, it should raise some eyebrows.”