The fee levied onto merchants will be increased from the current 8 cents to almost triple that amount, at 23 cents, although both companies will waive the interchange fee. Analyst Thomas McCrohan said that this will effectively
kill the economics for small ticket debit purchases and influence a shift back to credit cards. This will almost certainly lead to a merchant revolt against the card networks. This pricing change demonstrates the risk to small ticket merchants that accepr debit cards.
Big ticket merchants will also be affected, for example coffee chain Starbucks, where the majority of daily transactions are very small. McCrohan suggests that retailers and merchants will be violently opposed to the changes.
Some experts believe that if Visa and MasterCard do implement this price increase, merchants may be prompted to invest in new technology to allow them to accept alternative payment methods such as PayPal and new mobile payments systems which will allow them to continue to accept small ticket debit card purchases without it costing the merchant a huge amount.
McCrohan offered a number of suggestions as to why the credit card processing networks may have decided on this course of action:
- To help the issuing banks to recoup some of the revenue which will be lost as a result of the new regulations limiting debit card interchange fees.
- As a reaction to a long running merchant lawsuit regarding the fees charged for processing credit and debit cards payments.
- To push merchants towards mobile payments and consumers to mobile wallets which involve paying by tapping a mobile phone or other mobile device at wireless terminals rather than swiping a credit card.
The most likely of these suggestions is that the banks are making an effort to recoup the estimated $8 billion of lost revenue caused by the Durbin Amendment which will cap debit card interchange fees. A spokesman for MasterCard, James Issokson said,
MasterCard recently informed our issuers that we will implement a two-tiered interchange structure. As we have noted throughout this process, setting price caps will – and has – created distortions in the market.
Visa have yet to comment on the issue of small debit card transaction fees and the decision to increase them.
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