Digital Transactions Authoritative, insightful and timely information for payments professionals
The jury is out—and will remain so for some time—on the Credit Card Competition Act and its chances of becoming the law of the land. One of the bill’s sponsors—and probably its prime mover—is Sen. Richard Durbin, Democrat of Illinois, and on the debit card side of the payments business, his franchise is doing quite well indeed.
As I am writing this note, the Federal Reserve is set to take up in a few days the question of whether a ceiling on the fee merchants must pay for debit card acceptance is too high and should be lowered. The Fed’s debit card regulation, inspired by legislation sponsored by Durbin, is 12 years old, and its stipulated fee of 21 cents per transaction has stood for that entire time while processing costs have, many argue, shrunk (the regulation also includes a penny for fraud prevention and 0.05% of the transaction to cover the cost of fraud, but the focus of everyone’s attention is on the 21 cents).
By the time you read this note, the Fed’s ruling on the matter of lowering that 21-cent limit may have been released. No matter. It seems virtually a sure thing the nation’s banking regulator will fiddle with that number in some way. If so, as we hinted at the start, it will represent a double victory for Durbin.
Why? Recall that his amendment had two parts. The price per transaction was only one. The other part had to do with transaction routing. This required that merchants must have a choice of networks for debit transactions, at least one of which could not be either Visa or Mastercard. It took 12 years, but the Fed finally enforced that provision earlier this year, and now merchants, particularly in e-commerce, can go with any number of alternative networks.
As we noted, you by now know the outcome of the fee matter. Our bet is that the Fed has reduced it from that longstanding 21-cent standard. If so, good for merchants—and good for the industry.
If we’re wrong, then it’s back to the 21-cent fee and the status quo. But if we’re right, while the lower fee is worth celebrating, it’s our feeling the means by which this came about is not ideal. Our conviction—repeated a number of times in this space over the years—is that pricing matters are best determined by market forces, not by the fiat of some regulator.
If external forces hinder that market regulator, that could be cause for legal recourse. But rule by fiat is bound to give rise to complications the industry will regret.
—John Stewart, Editor john@digitaltransactions.net
