Please check out my most recent post on WiseBread: 5 Ways to Give Cash As a Gift. It’s a fun article that features some fun alternatives to the standard cash and a card.
There’s been talk of big banks such as JPMorgan Chase changing their policies to cap debit card transactions at $50 or $100. Do you know why?
My first thought is that they want people to use their credit cards more, but I was wrong.
Each time we make a debit transaction, the bank changes the retailer an ‘interchange fee,’ which averages at 44 cents. These interchange fees help offset money lost from fraudulent transactions.
Each year, those small fees add up to about $16 billion, so in it’s not chump change even though each transaction is small.
As part of the financial overhaul legislation that was passed last year, these interchange fees are being reduced, and under the current proposal by the Federal Reserve, interchange fees would be capped at 12 cents per transaction.
Chase alone is projected to lose more than $1 billion a year because of the change. Other banks are also predicting big losses.
This story is not simply about big banks not making as much money. They are trying to recoup costs of fraudulent transactions, and there are two ways of maintaining a balance between fees they collect and fees they have to pay due to fraud.
The first is by charging enough on each transaction to cover the fees. Based on the new legislation, however, it won’t be enough.
So banks are considering trying to reduce the amount of fraud by limiting the limit each fraudulent charge could possibly cost.
Instead of $1,000 in fraud on a transaction, if the limit were $50 or $100, there just wouldn’t be as much fraud and the banks wouldn’t have to pay out more than they take in from interchange fees.
Readers, do you think reducing interchange fees would be a good thing? Would putting a limit on debit card transactions affect the way you shop?