So what is interchange, and why does it exist?
When a merchant accepts a card for payment, they pay a “merchant discount fee,” which is typically 2 – 2.5% of the transaction amount. “Interchange” is the portion of this fee that is received by the bank or credit union that issued the customer’s card. This now averages 1.65% for all cards.
Merchants pay this in order to access the global electronic payments network, along with the opportunities for increased revenue and guaranteed payment it provides.
Interchange revenue is critical to running a card program, partially reimbursing card issuers for the float on the funds, the risk of nonpayment or fraud, and other activities associated with running a card program.
If the Federal Reserve sets interchange rates too low:
Consumers will foot the bill.
All industry analysts, media, and consumer advocates are warning that this will result in consumers paying more to own and use debit cards.
Find out how consumers were harmed when similar regulation was passed in Australia »
Community banks and credit unions will be harmed.
Community banks and credit unions will be forced to make up lost revenue in other ways, such as:
- Eliminating free checking
- Charging for online banking
- Eliminating or charging for rewards programs
- Annual fees for debit cards
- Point-of-sale fees for paying with debit.
Learn why the so-called “carve-out” for small financial institutions won’t work. »
Small businesses won’t be able to compete with large retailers.
Today’s global credit and debit system allows even the smallest kiosk on Main Street to compete on a level playing field with the world’s largest retailers. Small businesses across the country will ultimately be harmed — not helped — by this legislation.