The fees that merchants pay to accept debit cards, including for online retail transactions, could decline under a measure the U.S. Senate passed yesterday as part of a bank-reform bill. That could be important for online retailers, as debit cards are used in more than a quarter of web purchases, according to research and consulting firm Javelin Strategy & Research.
The legislation would give the U.S. Federal Reserve the power to set “reasonable and proportional” fees for debit card transactions under an amendment sponsored by Sen. Richard Durbin (D-IL). A typical fee for an online retail transaction for a Visa-branded debit card is 1.6% of the transaction amount plus 15 cents, though fees can vary depending on the size of the merchant and the type of card, according to Visa's published rates.
The measure also would enable merchants to offer discounts to shoppers who pay with debit cards, checks or cash. Currently, card networks such as Visa and MasterCard prohibit merchants from charging customers more to use cards carrying those brands.
The amendment gave no indication of how much debit card fees might decrease, though banks and credit unions with no more than $10 billion in assets would be exempt from the rule. Those institutions issue cards that account for some 35% of U.S. debit transactions, according to estimates from Durbin’s office.
Online retailers could experience significant benefits from the legislation because consumers used debit cards for 28% of online payments in 2009, says Javelin Strategy & Research. The percentage will decline to 25.6% in 2014, Javelin says, but that still represents a quarter of online spending.
The measure passed on a 64-33 vote, with 46 Democrats, 17 Republicans and one independent voting in favor. The amendment now must find its way into a compromise Congressional financial regulation bill. The House of Representatives passed its version of financial regulation late last year, and negotiators would have to include the Durbin amendment in the final bill.
That seems likely, says Scott Silverman, executive director of Shop.org, a trade group for online retailers. “It was a very strong vote and there was bipartisan support,” he says.
MasterCard Worldwide said in a statement that it doubts larger merchants would pass along their savings to consumers.