The Board of Governors of the Federal Reserve System lowered the swipe fees on debit cards today, cutting in half what banks normally receive on transactions.
Swipe fees, also known as interchange, are what banks charge merchants when customers use debit or credit cards as payment. The fee covers the cost of processing the transaction and preventing fraud, and they are a major source of revenue for banks.
The Fed decided on Wednesday to cap swipe fees at 21 cents plus a 0.05 percent fee of the transaction amount to cover fraud. In Connecticut, the average swipe fee charge was 44 cents.
The new rules only cover debit cards – not credit cards – and go into effect July 21.
The final decision is better for banks than the 12 cent cap the Fed proposed late last year. Webster Bank, for example, predicted it would lose $20 million annually if interchange was capped at 12 cents.
The decision on Wednesday is a win for retailers, restaurants and merchants who pay the swipe fees.
Both sides in the feud claimed consumers would suffer in the long run. Retailers said the swipe fees are passed along in the cost of products, and banks said the lost revenue would cause them to increase the cost of debit cards and other banking services.
