Focus on Interchange Fees

I read two articles of interest yesterday…both spotlighting the focus on interchange fees and potential for reform in Congress.

The first article was in yesterday’s Wall Street Journal titled, “Interchange Fees Step Into the Spotlight.”  The article talks about the increase in interchange fees over the years in the U.S. and potential for reform via congressional action.  Banks raked in $45.3 billion in 2008 from credit- and debit-card fees charged to merchants.  75% or $34 billion of these fees go the credit/debit card issuing banks and the remaining 25% or $11.3 billion in fees go to payment processors.  

The second article is a study from the Merchants Payments Coalition titled, “Swipe Fee Reform – International Lessons.”  This study compares U.S. interchanges with about a dozen other countries around the planet and concludes that U.S. has the highest interchange.  This study is clearly geared to influence the debate in Congress towards reform.

Any movement or inclinations from Congress on this debate will come after the Comptroller General’s office publishes an in-depth study of interchange next month, including large and small merchants’ ability to negotiate with card networks on fees.

We wrote the following in July and while we support the actions of Merchants Payments Coalition, we don’t believe there is enough impetus in Congress for reform.  It is true that legislation could regulate and thus, reduce Interchange costs. However, regulatory action is very untenable and could take years. The banks will be very aggressive in fighting any sort of regulation, having just lost their battle with consumers in the way of Credit Card Accountability Responsibility & Disclosure (CCARD)Act. Moreover, lawmakers will be a bit more reticent in implementing additional bank regulations that further stresses bank profitability, especially after sector weakness and increased regulations from the mortgage meltdown and the CCARD Act.

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