A new white paper released by the Merchant Advisory Group revealed the Federal Reserve's debit interchange regulation has kept debt interchange rates high at the same time that costs to process debit transactions have been falling.
On Jan. 22, MAG, which is a trade group made up of more than 80 of the largest U.S. merchants and is focused solely on payments, released," Volume and Cost Trends in the Debit Industry." The firm said it used the "2013 Federal Reserve Payments Study: Noncash Payment Trends in the United States: 2009-2013" as a source.
According to the report, the Fed's numbers showed mean issuer costs of processing a debit transaction dropped from 7.6 cents to 4.4 cents, a decrease of 42%.
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The MAG and its members are hopeful the Federal Reserve will reassess the appropriateness of their existing debit card standards, Mark Horwedel, CEO of the Merchant Advisory Group, said.
"Market forces are still not working properly in the debit card industry as demonstrated by a lack of reduction in the network set rates below the maximum allowable level despite significant cost reductions by covered issuers in the past five years," Horwedel said.
He added, "When a product or service that cost no more than a nickel or dime over twenty years ago – and has seen significant improvements in technology and increases in volume – skyrockets to almost 10 times that amount, it should raise some eyebrows."
The Merchants Payment Coalition, a trade group formed to lower debit and credit card interchange, seized on the report, saying it reflected the need for the Federal Reserve to reform its debit regulations.
"This report shows that what the banks have said about debit reform is wrong. By limiting price-fixing on debit fees, reform led to more efficiency. That's good for everyone," said Lyle Beckwith, SVP, government relations for the National Association of Convenience Stores, which is a MPC member.
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