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Swipe Reform Saving Up to $18 Million/Day

Analysts say Swipe Fee Reform Saving Up to $18 Million/Day.
Retailers finding a variety of ways to pass the value along to their customers.


WASHINGTON, September 26,
2012 – With the first anniversary of debit card swipe fee reform approaching
next week, U.S. retailers and their customers are benefiting from savings of up
to $18 million a day that previously went to card companies and the nation’s
largest banks, the National Retail Federation estimates.

“Merchants haven’t necessarily labeled the savings from reform as a ‘debit
discount’ but they have nonetheless found a variety of ways to pass the value
along to their customers,” NRF President and CEO Matthew
said. “Depending on the store, shoppers are paying lower prices,
getting better service or avoiding prices hikes that otherwise would have come
with inflation.”

“Retailers are simply too competitive not to share savings with consumers
because customer value is one of the key ways they take market share away from
their competitors,” Shay said. “Retailers know that if they don’t pass along
the savings the store across the street will.”

Prior to reform, debit card swipe fee cost retailers and consumers $22 billion
a year in 2010, according to the Nilson Report, a newsletter that tracks the
card industry. At that level, the fees drove prices up an average $192 a year
for each of the nation’s 114 million households.

Reform measures that took effect on October 1, 2011, reduced banks’ debit card swipe revenue by $6.6 billion, according to a report issued by Javelin Strategy and Research. While some card processors have yet to pass the full reduction along to retailers, the figure comes to as much as $18 million a day nationwide.

Merchants have found a variety of ways to pass the savings along to customers:

•    Home Depot announced last year that the savings went into a
pool of reduced operating costs that allowed it to reduce the prices of more
than 3,000 items.

•    Ikea offers savings vouchers to customers who pay by debit
that can be used on their next purchase.

•    Some stores have added sales clerks or taken other steps to
improve customer service.

•    Gas stations that previously offered discounts for cash are
now accepting debit cards at the same price as cash.

•    Despite bank claims that retailers would pocket the
savings, retail industry profits have remained largely flat, and are not
showing the boost that would have come had the money been retained rather than
passed along to consumers.

•    Even a report by Moody’s Investors Service that questioned
whether consumers would see price reductions said retailers would likely use
the savings to avoid prices increases that would otherwise come as other costs
go up.

Nonetheless, NRF is not satisfied that retailers have been able to pass along
as much savings as Congress intended, and is scheduled to be in court next week
to seek a further reduction in the fees. Oral arguments are scheduled for
October 3 in U.S. District Court in Washington, D.C., in a lawsuit NRF and
other groups filed last year alleging that the Federal Reserve failed to follow
the requirements of the 2010 law that created swipe fee reform.

Under the law, the Federal Reserve was required to set guidelines that would
result in fees “reasonable” and “proportional” to banks’ cost in processing
debit card transactions. The Fed initially determined those costs to be an
average 4 cents per transaction and proposed a cap of no more than 12 cents.
After heavy lobbying by the banks, however, the final regulations set the cap
at more than five times the actual cost – 21 cents plus 0.05 percent of the
transaction and, in most cases, an additional 1 cent for fraud prevention. The
NRF lawsuit seeks to have the Fed revisit the cap.

Swipe fees are a hidden charge banks collect each time a Visa or MasterCard is
swiped to pay for a purchase. Combined credit and debit card swipe fees tripled
over the past decade to about $50 billion a year – driving up prices an
estimated $427 for the average household – before debit swipe was capped. Prior
to reform, debit swipe ranged from 1-2 percent of the transaction. Credit swipe
has yet to be addressed and continues to average about 2 percent.

As the world’s largest retail trade association and the voice of retail
worldwide, NRF represents retailers of all types and sizes, including chain
restaurants and industry partners, from the United States and more than 45
countries abroad. Retailers operate more than 3.6 million U.S. establishments
that support one in four U.S. jobs – 42 million working Americans. Contributing
$2.5 trillion to annual GDP, retail is a daily barometer for the nation’s
economy. NRF’s Retail Means Jobs
campaign emphasizes the economic importance of retail and encourages
policymakers to support a Jobs,
Innovation and Consumer Value Agenda
aimed at boosting economic growth and
job creation.

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