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That litigation ended in an out-of- Spurred by the Durbin Amendment, the Fed capped debit card interchange at
court settlement in 2004, at a cost of 22 cents plus 0.05 percent of the transaction amount, but this cap applies only
$3 billion to Visa and Mastercard, and to the largest issuers of debit cards (assets exceeding $10 billion). Thousands
elimination of the honor-all-cards of community banks and credit unions are exempt from the cap. The Fed
rule. (This was the first of several reported that in 2021, debit interchange at covered FIs was 23 cents; the average
lawsuits lodged by merchants against for exempt FIs was 52 cents.
Mastercard and Visa.)
While the intent of the Durbin Amendment was to create savings beneficial
The rise of debit cards to merchants and consumers, numerous studies suggest otherwise. Banks
Debit cards took off in the early generally offset losses in interchange revenue by raising other consumer account
1980s as FIs sought to move check- fees and eliminating free checking for all but their wealthiest depositors. The
cashing customers to ATMs. (Before Federal Reserve Bank of Richmond found fewer than 2 percent of merchants
that, consumers needing greenbacks passed along savings on interchange to consumers; 20 percent increased prices
went to banks or local merchants and post Durbin.
cashed personal checks.)
The Durbin Amendment also mandated merchant choice in debit card routing
It didn't take long before several and made clear that the card brands cannot prevent merchants from steering
innovative banks, and the regional customers to cheaper payment methods, like cash.
ATM networks they eventually set up,
began experimenting with debit card Merchant choice is the centerpiece of Sen. Durbin's proposed Credit Card
acceptance at merchant checkouts. By Competition Act, and customer steering is gaining, with agents selling cash
the early 1990s, Visa and Mastercard discounting, surcharging or some other dual pricing methods. Look for more
had built their own debit networks, on these and other trends in future installments of this series.
Interlink and Maestro, respectively. Patti Murphy, senior editor at the Green Sheet, has been following and writing about payments
for 40 years. She has been working with Green Sheet for 25 years. Patti is also co-host of the
While the same FIs that owned the Merchant Sales Podcast.
card brands also owned the ATM
networks, control of those assets fell
to different functional areas. Credit
card executives wanted merchants
to use Mastercard and Visa to clear
debit cards. And because credit cards
were a more profitable product line
for FIs than ATMs, these executives
prevailed.

Other downsides of using the ATM HOLIDAY PAYMENT
networks for POS debit card payments
included the need for PIN pads for SOLUTIONS
authorization and separate contracts
with ATM networks. POS debit took
off with the Great Recession. In fact,
credit card usage fell for the first ACH • LEVEL III • EMV
time in 2010, and debit cards became
Americans' first choice in non-cash WEB • RECURRING
payment methods, according to the
Federal Reserve.

Congress takes notice CASH DISCOUNT
Credit and debit card acquiring CUSTOMER DATABASE
remained an issue primarily between
merchants, acquirers and the card
brands until 2010 when a group of C A L L F O R A D E M O
retailers convinced Senator Richard
Durbin, D-Ill., to add an amendment 8 0 0 - 2 9 6 - 4 8 1 0
to the Dodd-Frank banking reform
act. That led to the regulation of debit
card fees, which at the time ran about
2 percent.
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