Visa, Mastercard Push Fraud Costs Onto Merchants — Federal Reserve
The Federal Reserve recently released new data on debit cards and the results are eye-opening.
The report shows that Visa and Mastercard have continued to push more fraud costs onto merchants and have reduced the amounts that banks pick up.
- Merchants paid 49.9% of debit card fraud losses in 2023 (the most recent year available) according to the report.
- That is up from 46.9% in 2021.
- Banks only paid 28.3% of debit fraud losses.
- That is down from 33.4% in 2021.
That is even though merchants also prepay for anticipated fraud losses through debit swipe fees in an amount pegged to 100% of the average bank’s fraud losses (0.05% of transaction amounts).
- And, by the way, that is under the Fed’s regulation. Merchants pay much more in those fees to banks with less than $10 billion in assets that aren’t subject to the Fed regulation.
So, merchants are increasingly paying banks twice for fraud — in advance and after the fact. Amazingly, those same banks keep complaining to Congress that they need merchants to pay even more for fraud.
Understand that for many banks with less than average debit fraud, they already make a profit on fraud because the part of the debit swipe fees that merchants prepay for anticipated fraud is more than the fraud losses the banks actually pay.
And, aside from fraud, the debit fees banks make on debit cards under the Fed’s regulation dwarfs their costs.
- The report shows that banks make about six times their costs — 500% profit margins — with debit fees averaging 24 cents with average costs of 4.1 cents.
- Again, that is under the Fed’s regulation. The majority of banks are not subject to the regulation and make several multiples of that number.
What does this mean?
- Well, for one, it means that despite banks’ protestations, debit fees give them giant profits — even with Fed regulation of those fees.
- It means the Fed is long overdue to update its regulations and reduce fee levels to reflect what is happening on the ground.
- It also means everyone had better check the facts before listening to banks’ complaints (which simply don’t match reality).
And credit cards?
Massive credit card companies and banks make even more on credit cards each year:
- The modest, bipartisan compromise proposed to simply make credit card companies compete a little on their fees is not the scary bogeyman that the card companies like to claim.
COMPETITION IS BETTER FOR EVERYONE
IT'S TIME TO PASS THE CREDIT CARD COMPETITION ACT