It doesn't take a rocket scientist to project that the Dodd-Frank Act and the proposed .12 cent debit transactions will steer merchants towards "heavily steering" their customers to pull out their debit card and keep their credit card in their pocket. Why?
Given the choice, paying .12 cents is exponentially more attractive than paying $30.00, $20.00 or $10.00.
So, why would stores even want to accept credit cards? Talk about steering things up...
Debit caps may lure business away from credit cards
By Peter Eichenbaum
Bloomberg News / January 7, 2011
NEW YORK — A plan to slash debit card transaction fees also may wipe out some of the $38 billion that lenders collect on credit cards as merchants steer customers toward less costly forms of payment. The threat stems from the Federal Reserve’s proposal to cap “swipe’’ fees, or interchange, at a flat 12 cents for each debit transaction, replacing a formula that averages 1 percent of the purchase. The cap must be in place by July 21 to comply with the Dodd-Frank legislation that overhauled the financial industry last year. Credit card interchange fees, which average about 2 percent, remain untouched.
By Peter Eichenbaum
Bloomberg News / January 7, 2011
NEW YORK — A plan to slash debit card transaction fees also may wipe out some of the $38 billion that lenders collect on credit cards as merchants steer customers toward less costly forms of payment. The threat stems from the Federal Reserve’s proposal to cap “swipe’’ fees, or interchange, at a flat 12 cents for each debit transaction, replacing a formula that averages 1 percent of the purchase. The cap must be in place by July 21 to comply with the Dodd-Frank legislation that overhauled the financial industry last year. Credit card interchange fees, which average about 2 percent, remain untouched.
That means a $1,000 television set bought with a credit card would cost a retailer a $20 fee, compared with 12 cents for a debit card. The disparity may tempt merchants to offer discounts for debit, diverting business from credit cards issued by American Express, JPMorgan Chase, Bank of America, and Citigroup.
“It’s a lot more effective now to steer to debit,’’ said Moshe Orenbuch, a Credit Suisse Group analyst. “You’ve massively opened up that gap on larger-ticket purchases.’’ Read More:
