Thanks to a huge push by 7-Eleven and some others, there may be some relief from high interchange rates. The Senate has passed an amendment to the finance reform bill that will limit the interchange rate on debit cards. Interchange is the fee that merchants pay to accept the card.
Merchants have been fighting a loosing battle with the card companies on this for years and most are delighted to see the amendment in place. Whether or not it becomes law is yet to be seen.
As frequently happens with government intervention, there could be some unintended consequences.
According to the estimates in the trade journals, the Visa and MasterCard combined revenue from interchange fees was in the rather large neighborhood of $35 billion in 2007. I’d guess it’s around $40 billion this year. When those fees are lowered, and they will be, the card issuers will make up the lost revenue somewhere. They always do.
The industry has three main sources of revenue in this game; Interchange fees, interest on credit balances, and the miscellaneous fees that target cardholder and merchant alike. One of those sources will make up the lost revenue.
As I mentioned in my last post, the merchant is the lowest person on the hill. For that reason, I’ll bet that interchange fees on credit card transactions will be increased to recover the revenue. It won’t be a one to one transition either. Credit card use is shrinking in favor of the debit card. There are less credit transactions these days so you can look for those rates to increase.
Even if I’m wrong, one this is sure. The $35 billion won’t be lost. It will just be re-sourced.
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