WASHINGTON – Yesterday, the Merchant Advisory Group released a whitepaper analyzing a Federal Reserve survey of banks that issue debit cards. According to the whitepaper, “Volume and Cost Trends in the Debit Industry,” the Fed survey found that the cost to banks to process debit card payments has dropped from 7.6 cents a transaction to 4.4 cents — a whopping 42% reduction. Meanwhile, merchants have to pay the bank or the card issuer 25 cents every time a customer uses a debit card.

“This report shows that what the banks have said about debit reform is wrong. By limiting price-fixing on debit fees, reform led to more efficiency.  That’s good for everyone.  The only problem is that despite these efficiencies, rates are not dropping due to continued market inefficiencies. Failure by the Federal Reserve to re-calibrate their rules on debit card fees has allowed card companies and banks to continue to fix fees up to a 500% markup. The survey shows the Fed needs to change its regulations to reflect reality,” said Lyle Beckwith, NACS senior vice president of government relations.

While swipe fee reform should have resulted in even less price-fixing, it has still been a clear success for consumers and merchants. A 2013 economic study found that consumers saved nearly $6 billion and merchants created 37,500 new jobs in just the first year reform was in effect (2012). Extrapolating this finding, consumers have saved almost $18 billion over three years of reform, and merchants have created more than 100,000 new jobs. These numbers would have been significantly higher if the Federal Reserve’s rules were more fair and reasonable instead of providing card brands the latitude to significantly increase rates on some growing sectors of the U.S. economy.

Beckwith said the Fed survey is confirmation that the profit margin for banks on debit card swipe fees is “exorbitant, out-of-sync with market forces and evidence the fees should be reduced further, both for debit and credit cards.”

U.S. swipe fees on credit cards are eight times higher than in Europe, where elected officials have been reducing fees on both debit and credit, citing unfair and anti-competitive practices by the credit card companies and banks.