Small businesses will get a summertime lift at the cash register after the Senate voted this week not to delay the Federal Reserve’s proposal to cap debit card transaction fees at 12 cents per purchase. That means the new rules, written as part of last year’s federal financial reform, will take effect on July 21.
Retail merchants, in particular, stand to see a huge bump to their bottom line. Today, businesses pay a percentage of the purchase price — around $1.50 for a $100 transaction, according the National Retail Federation. Now every time a shopper swipes their debit card, the merchant will pay just 12 cents, no matter the transaction amount.
Over time, that will invariably lead to significant cost savings for small businesses, especially those that handle a high volume of debit card payments. A recent Federal Reserve study found that U.S. shoppers swiped their debit cards 38 billion times in 2009, accounting for more than a third of all non-cash payments.
The Senate vote wasn’t exactly a landslide: Opponents of the rule fell just six votes shy of postponing its implementation. Nor is everyone happy: Banks will lose billions of dollars in revenues as a result of the new rule.
Some big businesses will benefit from the rule, too. The New York Times notes that Home Depot executives recently told analysts it would save $35 million per year in transaction costs after the rule takes effect.
Proponents are also lauding the new debit card rules as a boon for consumers, saying that the billions of dollars in transaction fees that banks have been raking in each year are passed onto shoppers in the form of higher prices. The head of the National Retail Federation, for one, called the Senate vote “a landmark victory for American consumers” in a statement. But for that to really become true, businesses will have to pass on their future savings — much like they currently bake transaction costs into prices. Meanwhile, The New York Post points out that banks will undoubtedly look elsewhere to make up the lost revenue, and consumers are likely to foot the bill in the form of more fees and the elimination of free checking.
So when the new rules take effect, will you pass the savings on to your customers or pocket the change?