What Impact Can Retailers Expect From Swipe Fee Cap?

NEW YORK -- One week after the Federal Reserve Board issued its final rule on debit card swipe fees -- capping the fees at 21 cents per transaction -- industry experts are still debating what will happen next.

One thing that is not up for debate, according Jim Schlegel, senior product manager at ACI Worldwide, is that the Durbin Amendment is now law, not a proposal or recommendation. "Durbin is law; I think many people forget that," he said in an ACI Worldwide teleconference today, adding that it is not a matter of choosing what to do as an industry, but rather a matter of executing the law. ACI Worldwide powers electronic payments for more than 800 financial institutions, retailers and processors around the world.

While the Fed's decision drew jeers from both sides of the fence -- retail and banking -- Schlegel commended the board for tackling the issue. "It is a difficult topic to understand if you are not in the industry," he said. "It's even an anomaly to understand it for those of us in the industry."

In short, the new 21-cent cap is approximately 50 percent of the current rate, which is estimated at 44 cents per transaction. The Fed's originally proposed 12-cent cap would have represented an approximately 85-percent cut from the current rate. "Reality is setting in that this is in fact law," Schlegel said. "It is no longer the wait-and-see approach that many banks have taken to this point."

That is not to say there is no wait-and-see fall-out from the cap, which will be implemented in October. For example, it still remains to be seen if any expected savings will be passed along to consumers, as was promised during the swipe fee debate, said Rob Seward, product line manager at ACI Worldwide.

"I think the retailers have won a round in a bout, but the bout is far from over," he explained. "I think the industry will continue to evolve despite the legislative component to it now."

But, he wondered, if the retailers are prepared to extend any savings from debit card transactions along to their customers, adding that the retailers used this argument to gain support from the public during the years-long battle for swipe fee reform.

First, though, retailers need to have a firm understanding of how much their payment transactions are costing them now, before the cap goes into effect. While the number floated during the debates has been linked to the average industry standard, individual operators need to know the number that is specific to them. Only then can they track any savings resulting from reform, Seward said.

Retailers also need to keep an eye out for any changes that may come down the pike at a future date, noted Andy Brown, product marketing management at ACI Worldwide. If the United States takes any cue from the international arena, he said the Fed's approved rules will undergo some tweaking. "This legislation will get changes as [the Fed] sees what happens," Brown said. "There is always an unexpected impact."

And in what would be good news to consumers, he added that on the international scene -- particularly Australia -- retailers are passing along the savings to their customers. That could be a result of the high publicity that reform typically generates in any market.