Well, it seems to be starting already. As you may already know, the Durbin Amendment to the Dodd-Frank Act, went into effect today, October 1st. The impact this has on banks that issue debit cards is a huge loss in revenues (an estimated $8 billion). You see, up till now, whenever you swiped your debit card through a merchant’s terminal, and it was processed as a credit card rather than a pinned debit transaction, the banks earned an Interchange Fee. This Interchange Fee averaged over 1% + $.10-$.15 on the value of the goods or services purchased. With the implementation of the Dodd-Frank Financial Overhaul Act, swiped debit transaction fees are now limited to a flat $.21 plus a fee of.05% (5 basis points) that the banks will be collecting.
For merchants that accept plastic, this will result in a decrease in costs to them when processing swiped debit card transactions. Fees charged to them, by their merchant services provider, will easily be cut in half. That is, if you are currently priced on an Interchange Plus pricing model, the savings will automatically be passed on to you. If, however, a merchant is priced on any kind of tiered pricing structure, the savings won’t necessarily be passed along. Hopefully, in time, the resulting savings in fees to merchants, may translate into some lower prices for what they sell.
For processors that offer the most transparent form of pricing briansclub login to their merchants (Interchange Plus), they’ll still be able to generate some revenues from this change in the “plus” part of their pricing. If they are pricing their merchants in a tiered fashion, their profit margins will hardly be affected at all
For banks, well, they’re the ones that are going to be hit the hardest with this new act in place. And, we all know that banks are all about “fees” so how will they make up for this loss of revenues? Likely, they’ll try to recoup some of those losses by charging their customers in some other fashion. Bank of America, for example, has already announced that they will be charging debit card holders a $5 monthly fee. Customers will not be charged this fee if they don’t use their debit card and there will be no fee to use their ATM machines.
Wells Fargo and Chase are testing the waters with a $3 monthly debit usage fee. Regions Financial, based in Alabama, will start charging a $4 fee soon and Sun Trust has announced a $5 fee as well. Citibank is one of the few has, so far, elected not to charge their customers a monthly debit fee. In addition, many banks are no longer offering their “debit rewards” like they have in the past.
How are consumers going to react to banks attempting to raise their fees? What would your position be if your bank decides to implement a debit fee on your account? Would you look for another bank? Or, at the very least, elect to stop using your debit card. Last month, the trade publication, Digital Transactions, said that 60 percent of respondents to a 2010 survey said “any monthly debit card fee would cause them to switch to another payment form.” Is it worth $60 a year for the convenience of having money taken directly from your checking account and providing a paper trail to account for your expenditures more accurately? Only you will be able to determine if potential fees outweigh the advantages of using your debit card.
Some feel that using a “no-annual-fee” credit card and paying it off in full each month would be a better alternative to paying debit fees. And, in some cases these credit cards are earning rewards in addition. If you’re prudent and actually are able to pay off your balances monthly, this may be a good option. However, if instead, you aren’t diligent in this endeavor and start rolling over balances and building unwanted debt, well, you know how that can snowball. One other consideration is the better protections that credit cards offer you in protecting against fraud. When debit cards are stolen, consumers risk losing everything in their checking account if the loss isn’t reported in a timely fashion.
There is also the expectation that banks may start pushing prepaid cards as a debit alternative, according to the website, CardHub.com. Of course, these cards aren’t free either so make certain that you do your research and read any and all fine print.. But, this is a topic for a more thorough upcoming article so keep your eyes open.
Last but not least as an alternative to debit cards is….CASH. You remember cash don’t you? It’s that green stuff you carry around in your pocket that our government has done a great job in making it mostly worthless. Hey, there’s no fees or fine print to be concerned with and you’ll even find more businesses these days are offering discounts when paying with cash.
So, as a consumer, your next step would be to contact your bank and see what their intentions are regarding this whole debit issue. If they are going to start charging a fee, then take a look at your spending habits and the convenience of using debit and see if you then feel the applicable fee will be justified to you. If you decide to look elsewhere, you may want to do some searching for online banks, Check out Perk Street.com for example where customers can earn up to 2% cash back on their debit purchases, as well as 5% on specific categories. Don’t just stop your search there as you continue to look for alternatives as there may be other opportunities that more closely match your needs and spending habits.
As always, I want to thank you for taking the time to read my thoughts on issues having to do with the credit/debit card industry. I hope that this information has been helpful for you and that you will tell others about it as well.