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Similar to recently aborted Bank of America usage fee, new cost would compensate for Durbin amendment cap on debit card fees
An attempt by MasterCard to institute a 21-cent floor on all of its PIN debit card transactions to benefit banks using its branded debit cards could have a chilling impact on small businesses.
An attempt by MasterCard to institute a 21-cent floor on all of its PIN debit card transactions to benefit banks using its branded debit cards could have a chilling impact on small businesses.
“If this succeeds, margins will be painfully slimmer for many low margin, low ticket, high volume businesses such as grocery and fast food stores, coffee shops and gas stations,” said Robert G. Gerber, a partner in the Corporate and Securities practice group at Neal, Gerber & Eisenberg LLP (Chicago).
Using the example of a grocery store with an average net margin of 5 to 7 percent, Gerber pointed out that margins quickly will disappear on lower ticket transactions. On a $10 purchase, the net margin for the grocer would be about 50 to 70 cents. Under the 1.5 percent fee, the transaction cost would be $.015, and 6 cents more under the new 21-cent cost.
“These types of small businesses survive on operational efficiencies and turning more volume, so while 6 cents might not sound like much, it is more than 10 percent off the net profit margin on that transaction,” Gerber says.
According to Gerber, MasterCard’s overture basically is an attempt to compensate for the $0.21-per transaction cap on debit card fees instituted by the Durbin amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Only recently, Bank of America’s own attempt to recoup the millions of dollars that it would no longer make on larger transactions due to the cap – through a new $5 monthly debit card usage fee – was rescinded due to public outcries.
“MasterCard is quietly working to institute this new cost to recoup lost income, but also to influence banks to use its branded cards over those of other associations – namely Visa,” Gerber says.
Gerber is available to discuss this latest move by MasterCard and its potential impact on small businesses, as well as other banking issues related to the Durbin amendment. [11/17/2011]
