Interchange Fee
Interchange is a fee paid between banks for the acceptance of a card based transactions.Card issuers charge merchants an interchange fee every time a debit or credit card is used to make a purchase. Technically, the interchange fee is charged by the card issuer, however the merchants pay the fee to the company that processes their card transactions. As a result, some card processors are capitalizing on the change. The interchange fee rate is determined by Visa and MasterCard. Until the Durbin-law is imposed the average interchange fee charged from merchants was 44 cents per transaction. The Durbin Amendment imposes a cap on this fee. Originally set to take effect July 21, limiting banks with more than $10 billion in assets to a maximum 12 cent fee charged to merchants per debit card transaction. After the Durbin Amendment final bill takes effect on October 1, 2011, the fee is capped at 21 cents, plus 0.05% and an additional discretionary 1 cent for institutions employing effective fraud prevention initiatives.Issuers eligible for this adjustment, could then receive a maximum interchange fee of 24 cents for the average debit card transaction.
The Durbin amendment interchange fee cap composed of the following:
- A base fee of 21 cents per transaction for transactional type costs/expenditures.
- A five basis pointadjustment to cover potential losses from fraudulent activity.
- An additional 1 cent per transaction to cover fraud prevention costs (except for monitoring, which is included in the base transaction costs/expenditures noted above). If the issuer is eligible According to a Fed study of transactions initiated and processed during 2009, the average debit card transaction was approximately $40. Based on the final permissible fee structure, the interchange fee applicable to this transaction would be capped at 24 cents (21 cents + ($40 X .05) + 1 cent).
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Merchant Industry has changed its pricing system. Please complete the simple form and our representatives can help businesses and merchants understand the positive effects of the Durbin Amendment.
