How the New Credit Card Chips Can Affect Your Processing Fees

There’s a major fee war happening right before our eyes.

As the transition to EMV – debit or credit cards with computer chips – takes place, banks and card issuers are going head-to-head with merchants over debit card swipe fees.

EMV, which stands for Europay, MasterCard and Visa, officially rolled out in October 2015.

The purpose? To reduce card fraud and lower, or move, some of the costs of this kind of fraud away from banks to merchants. 

The result? A drop in card present fraud with a significant increase in card not present payment fraud, nearly 11% since the shift and an even more staggering 300% increase for digital goods retailers such as games, songs, movies, etc.

So How Has This Effected Merchants and Banks?

Back in 2010, The Durbin Amendment to The Dodd-Frank Act was passed, requiring the Federal Reserve to limit fees charged to merchants for debit card payment processing that are “reasonable and proportional” to the actual cost of processing a transaction. Of course the amendment was met with tremendous resistance from card networks and banks.

Before 2011, debit card interchange fees averaged around $0.44. The Federal Reserve, amid contention from the banks and card issuers, originally proposed a cap of no higher than $0.12 but eventually settled on a maximum interchange cost of$0.21 cap plus 0.05%of the transaction for merchants. 

Fast forward to 2016 and the topic is once again picking up some steam because not only is it unfair, but it may also be outdated. This obviously did not sit well with merchants, who have since begun to feel the significant shift in asserted counterfeit card costs.

Mallory Duncan, Senior Vice President of the National Retail Federation, has spoken out in a letter directed at the Federal Reserve in an attempt to secure the best rates for merchants.

“In most cases, 24 cents per transaction represents a significant savings over the prior non-competitive pricing,” Duncan wrote. “However, it is still substantially higher than issuers’ incremental costs.”

“Some mid-sized merchants already have seen issuer-asserted counterfeit card costs rise from tens of thousands of dollars to over $1 million per month,” Duncan continued. “If fraud costs anywhere near these amounts are being transferred from issuers to merchants, then the five basis point fraud allowance in the current standard may no longer have a legitimate basis.”

The second coming of Merchants vs. Banks & Card Issuers is only getting started, and will continue to develop in 2016. This is a topic any business accepting credit cards should keep an eye on because more savings could be coming your way. 

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