Home Depot partially credited recent cost-savings from interchange fees - fees banks charge retailers to process debit card transactions - for its ability to lower prices at its thousands of retail outlets.
Inserted into law as part of the Durbin Amendment, new caps on debit card processing fees are expected to save retailers as much as $5 billion per year. Previously, interchange fees were not limited by a universal maximum value. Thus, a transaction of $1,000 would cost retailers as much as $20-30 to process.
With new caps in place, retailers pay only 21 cents plus .05% of the transaction amount. A $1000 transaction would cost retailers $.71, a massive cost-savings. Home Depot reported that its interchange fees were its third largest operating cost, behind salaries for workers and real estate for its stores.
Not All Are Winners
The cap may be negatively affecting business that process many smaller transactions. In particular, DVD rental company Redbox raised its prices for DVD rentals to cover the new transaction price floor. Before the Durbin amendment, a $1 transaction would cost only a few cents in fees. Today, the charge is significantly higher with the 21 cent minimum fee put in place by most banking institutions.
Coffee shops and gas stations also report higher transactional costs due to their low average sale price.
According to the Federal Reserve, the processor and clearing house for all checking transactions, Discover is the least expensive processor, charging an average of 17 cents per debit card transaction. Visa and MasterCard show an average fee of 24 cents per debit card swipe. In 2009, the last year data is available, the average interchange fee charged to merchants was 55 cents per transaction.
The new law does not affect credit card processors. Credit card processing networks are private, using infrastructure owned by individual processors. Debit cards, however, are processed by the Federal Reserve system, a quasi-governmental agency.