Visa, MasterCard Sidestep Durbin: Heavy Debit Fees Grow Heavier
The launch of the Durbin Amendment was met with a swift and brutal counterstrike. Intended to bust up the Visa-MasterCard duopoly and lower fees on small businesses, the Durbin Amendment was annihilated before it could leave the ground. With expert precision, Visa found and exploited Durbin’s weaknesses, not only compensating for the regulation, but using it as an excuse to increase fees and tighten the stranglehold on small businesses.
Attempts to lower costs backfire
Every time you swipe a debit card, the merchant pays an interchange fee set by the card’s network (80% of the time, this means Visa or MasterCard). The Durbin Amendment aims to cap that fee in hopes of saving merchants money and passing the savings along to consumers. Before Durbin, the swipe fee on the average debit transaction was around 44 cents; now, it’ll be around 24. Theoretically, this could work—if Visa didn’t care about losing revenue.
As it happens, Visa is a big fan of money. Prior to the amendment, Visa might have charged a small, one-store merchant 7 cents for accepting a $2 charge and 35 cents for a $20 charge. Now, that 35-cent fee is capped at 23 cents. Visa makes up for the loss by raising the 7-cent fee to the maximum 23. Durbin lowers the high fees but does not prevent Visa or MasterCard from raising the low ones. Visa says that it needs to charge more on large transactions just in case those big buys are fraudulent, but that rationale doesn’t quite square with charging merchants exorbitant fees on their smallest transactions.
Visa doesn’t like competition
The other goal of the Durbin Amendment is to prevent anti-competitive pricing. Under Durbin, debit cards can no longer be restricted to a single network, nor can merchants be banned from processing cards on other networks. It’s a strategy for encouraging competition to a market controlled almost exclusively by Visa and MasterCard.
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