The Federal Reserve unveiled a proposal to reduce “swipe fees” banks can charge merchants for processing debit card transactions, making it the largest reform of interchange fees in a decade.
Following a Federal Reserve Open Board meeting on Oct. 25, the U.S. central bank announced that it would recommend reducing debit interchange fees by close to a third, from 21 cents to 14.4 cents.
Fed data show that the fees created $31.59 billion for lenders in 2021. Officials cited additional figures confirming that the costs of processing transactions had declined by about half in recent years.
The new proposed rule adjustments would also trim the ad valorem (transaction value instead of fixed fees per transaction) from 0.05 percent to 0.04 percent. The fraud-prevention adjustment would rise from 1.0 cents to 1.3 cents.
The central bank plans to assess future revisions to the interchange fee cap on a biannual basis. The last time the Fed assessed these fees was in 2011.
Debit cards continue to be the most popular form of non-cash payments in today’s marketplace, says Fed Gov. Michelle Bowman.
Banks Versus Retailers
In an Oct. 20 letter to the Fed Board of Governors, a coalition of nine major bank trade organizations, including the Independent Community Bankers of America (ICBA), urged policymakers to refrain from approving debit card interchange fee changes. They contend that altering the charge would not assist consumers because retailers do not pass savings onto customers.“Any promises or representations they make now should be viewed with robust skepticism,” the groups wrote. “We urge you to ’stop, look, and listen' so that a baseline of timely, accurate, and comprehensive data about the effect of existing regulations can be developed and analyzed before further action is taken on new rules related to debit card routing and/or interchange.”
The Federal Reserve will finish the comment period 90 days after the proposal is published in the Federal Register. There is a growing expectation that both banks and retailers will challenge any final rule.
Retail industry experts assert this is good news for retailers since swipe fees are some of the most significant costs merchants endure. As a result, retail juggernauts like Walmart, Kohl’s, Macy’s, and Target will likely experience the most benefits because they serve a high volume of debit card users.
Shares in Visa and Mastercard slumped during the Oct. 26 trading session, falling around 2 percent and 5 percent, respectively.
Retail stocks were mixed toward the end of the trading week. Walmart shares dropped about 0.5 percent, while Target shares rose roughly 0.5 percent.
Fed Introduces More Reforms
U.S. regulators have had a busy week of introducing reforms to longstanding regulations.Fed Vice Chair for Supervision Michael S. Barr called it a “critical step.”
The Fed Board voted 6 to 1, and the FDIC voted 3 to 2. The new framework is scheduled to come into effect in January 2026.