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Fees, routing rules continue to come under attack North of the border interchange has been slashed for about
90 percent of small businesses (those with $200,000 or less
Interchange continues to be a hot-button issue. And not in yearly transactions) under an agreement negotiated be-
just credit card interchange. The Fed, which was given tween the Canadian government and the card brands.
the power to set debit interchange rate caps by the Durbin
Amendment to the Dodd-Frank Act, wants to slash by Dual pricing on fire and under fire
about 30 percent the cap put in place 12 years ago. If the
Fed follows through on the plan, the cap would drop to Interchange has been a flashpoint for years but has be-
14.4 cents plus 0.04 percent (4 basis points) of the transac- come more controversial as interchange tables become
tion amount, plus 1.3 cents to cover fraud prevention costs. more voluminous and complex. "With today's statements
you practically need a masters degree to read and deci-
Under this proposed regime, interchange on a $50 debit pher them," stated Alan Kopelman CEO at Nationwide
card transaction would drop to 17.7 cents from 24.5 cents Payments Systems.
today. The cap would continue to apply to debit card issu-
ers with assets in excess of $10 billion. One workaround that has emerged and is gaining in
popularity is dual pricing. It allows merchants to offload
The proposed haircut received immediate blowback, in- processing costs on cardholders, and it generates better re-
cluding from inside the Fed. Fed Governor Michelle Bow- siduals for ISOs and their agents.
man indicated in a public statement that she would vote
against adopting the proposal. Dual pricing comes in several flavors—surcharging, cash
discounts, non-cash adjustments—none of which have
Meanwhile Senator Dick Durbin, the Illinois Democrat be- proven popular with the card brands. In April, Visa re-
hind debit caps, set his sights on credit cards. Rather than duced from 4 percent to 3 percent the maximum surcharge
regulate credit card interchange directly, Senator Durbin for a credit card payment.
is pushing legislation that would require merchants be
given at least two network options for processing their Visa is not alone. It seems these charges may get caught up
credit card payments. Only one of those networks, how- in the Biden Administration's campaign against junk fees.
ever, could be owned by Visa or Mastercard. In October, the FTC proposed a new rule to rein in junk
fees that includes references to both credit card surcharg-
The expectation is that network choice will drive down in- ing and discounts for cash.
terchange. But it could prove an expensive proposition for Tightening regulatory grip
issuers who would need to reprogram all their cards. The
Credit Card Competition Act, which Sen. Durbin tried There has been plenty of news on the regulatory front, and
and failed to get passed in the last Congress, has biparti- not just from the Fed and the FTC. The Consumer Finan-
san support in both houses of Congress. He tried to attach cial Protection Bureau and the Financial Stability Over-
the legislation as an amendment to several must-pass bills sight Council both want to rein in big tech involvement in
this year, but those efforts failed. payments. Both agencies were created by the Dodd-Frank
Act. The FSOC was created to identify and propose steps
Unlike the Durbin Amendment, which took card issuers regulators can take to quash threats to economic stabil-
and acquirers by surprise, opposition to the Credit Card ity posed by financial services firms. Back in 2021, the
Competition Act is strong and growing, with blowback CFPB ordered six large tech companies and peer-to-peer
not just from financial institutions and their partners, but platforms that operate payment services (Amazon, Apple,
smaller businesses, too. Facebook, Google, PayPal and Square) to provide detailed
answers to questions about their business practices.
The Small Business Payments Alliance, representing en-
trepreneurs, small business owners and tradespeople, Last month, the consumer watchdog agency proposed
is pressing lawmakers to vote against any effort to push a supervisory plan for large nonbanks that offer servic-
through the legislation. While large retailers may be able es like digital wallets and payment apps. The proposed
to take advantage of routing choice, small businesses lack rule would establish oversight of nonbank financial com-
the infrastructure and capacity to take advantage of net- panies—specifically those handling more than 5 million
work choice, the group stated. transactions a year—in line with financial institution
oversight.
Meanwhile, there were rumblings this year about a De-
partment of Justice investigation into card interchange. Digital wallets have become the go-to payment method for
And the Federal Trade Commission took Mastercard to online transactions. According to the FIS Global Payments
task this year for forcing ecommerce merchants to route Report the use of digital wallets by U.S. consumers jumped
debit card payments through Mastercard networks. Mas- from 14 percent in 2014 to 32 percent in 2022. FIS forecasts
tercard agreed to provide competing networks with the that by 2026, digital wallets will make up 41 percent of
customer account information needed to process debit ecommerce and 16 percent of POS transaction dollars.
card payments.
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