Retailers applaud proposed new debit card regulations

New Federal Reserve rules will give retailers a choice between networks to process debit card transactions regardless of whether the purchase is made in-store or online. The National Retail Federation said the move it will help level the payment-processing field for all retailers.

“The Federal Reserve has declared once and for all that a debit transaction is a debit transaction no matter where it takes place and that merchants have the right to choose the network that offers the best service, strongest security and most reasonable fees,” said Leon Buck, NRF vice president of government relations.

He said the new protocol by Congress ended Visa and Mastercard’s virtual monopoly over debit transactions a decade ago, and this decision makes clear the law applies the same for in-store and online transactions, the result he said Congress mandated in the first place.

The proposed new regulations were approved Oct. 3 and clarify that the routing choice requirement applies to online and other “card-not-present” transactions the same as in-store transactions and card issuers must enable their cards to be processed on at least two networks regardless of where they are used.

Debit and credit card “swipe” fees banks and card networks charge to process transactions totaled $137.8 billion in 2021, according to the Nilson Report. The fees are among most merchants’ highest operating costs and drive-up prices paid by consumers by about $900 a year for the average family, NRF said.

Debit card fees totaled $32.6 billion last year, with payments processed over Visa and Mastercard accounting for $28.1 billion of the total. Buck said Visa and Mastercard rules and financial incentives pressured banks not to enable the “PINless” capability required for cards to be processed over independent networks when a PIN could not be entered. Retailers have argued the lack of online routing options violated the Durbin Amendment, and the Fed agreed in 2021.

He said retailers may now process online debit card transactions through independent networks like Shazam or NYCE offering equal security and in many cases lower fees. NRF said the use of independent networks for in-store transactions has widely been used and helps retailers and customers save an estimated $9 billion per year.