May 1, 2012, 4:43 PM

Big banks make less on debit card purchases, but are retailers paying less?

Interchange fell by more than half on purchases with many Visa and MasterCard debit cards.

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Big banks are receiving substantially less in interchange fees than they did before the Federal Reserve Board mandated lower fees last year, the Fed reported today. That could open the door to retailers, both online and offline to negotiate lower merchant fees.

On so-called “signature” debit cards, the kind mainly used online, the average interchange fee fell in the fourth quarter of 2011 to 0.63% of the transaction amount from 1.54% in the first three quarters for cards issued by banks with more than $10 billion in assets. The Fed rule mandating lower interchange fees on debit cards did not apply to banks with less than $10 billion in assets. The big banks account for two-thirds of transactions, the Fed says.

On an average online debit card transaction of around $80, that saving would translate into an e-retailer paying only 50 cents in interchange instead of $1.23. But there’s no guarantee the e-retailer would pay less, because interchange is not paid directly by the merchant. Instead, it’s paid by the merchant’s bank to the bank that issued the debit card; the merchant bank, or more often the payment processor operating on its behalf, charges the retailer what’s known as a discount fee that includes interchange and other charges.

Most e-retailers are not yet seeing any reduction in debit card fees as a result of the Fed-imposed interchange reduction, according to an Internet Retailer survey earlier this year. In that survey, only 14.6% of respondents said they were paying less on debit card purchases. Denée Carrington, a senior analyst at Forrester Research said at the time that it may be that e-retailers have not yet had a chance to renegotiate contracts with their payment processors to reduce their fees on debit purchases.

The Fed rule limits the interchange on a debit card transaction to 21 cents plus .05% of the transaction amount plus a 1-cent allowance for banks’ fraud-prevention expenses. On an $80 transaction that would limit the interchange to around 26 cents. Before the Fed issues its rule, the typical Visa and MasterCard interchange rate on the kind of debit cards used online—those that do not require entry of a PIN—was 1.60% plus 15 cents, or $1.43 on an $80 purchase.

The Federal Reserve capped debit card interchange in a ruling issued in December 2010 after conducting a study of banks’ costs for issuing debit cards and processing transactions.

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