business news in context, analysis with attitude

The Associated Press has an analysis of last week’s proposal by the Federal Reserve that a cap of 12 cents per transaction be put on the interchange fees charged by banks for debit card transactions.

“At issue is who will ultimately benefit from the savings?,” the AP writes. “The Federal Reserve's proposal to cap these fees, officially known as interchange fees, at 12 cents per transaction would enable retailers to pass on annual savings of $10 billion to $13 billion to consumers. But banks and card networks maintain that retailers will pocket the savings. This would leave consumers to bear the brunt of the new law through higher costs for banking and reduced rewards programs” that likely would take place when the banks lose a system that generated some $15 billion in profits last year.

And, the story goes on, “Burt Flickinger of Strategic Resource Group suggested many retailers will encourage consumers to use their debit cards instead of credit cards, which carry higher interchange fees that are not addressed in the law.

“Industry watchers predict banks will respond by trying to make up at least some of the lost merchant revenue from consumers.”
KC's View:
You’ll see that not everybody feels positively about the new proposal when you read ‘Your Views,” below.