The National Retail Federation (NRF) welcomed a new study that shows retailers have passed along the majority of the savings from debit card swipe fee reform to their customers, and that the resulting increase in consumer spending has boosted job creation across the country.
But the study also shows that benefits for consumers and the economy could have been much larger if the Federal Reserve had set its cap on debit swipe fees lower as directed by Congress.
“This is clear evidence that retailers have seen significant savings from swipe fee reform and that they’re sharing that savings with their customers in a variety of ways,” said NRF Senior Vice President and General Counsel Mallory Duncan. “That’s a huge improvement over where we were before reform, and both consumers and the economy are better off. But the savings could have been far greater for retailers and consumers alike if the Federal Reserve had capped debit swipe fees at the level intended by Congress. The fight to bring swipe fees under control is far from over.”
Retailers saved $8.5 billion in 2012 thanks to a cap on debit card swipe fees that took effect on Oct. 1, 2011, and passed along $5.87 billion of that savings to customers, according to a report titled “The Costs and Benefits of Half a Loaf: The Economic Benefits of Recent Regulation of Debit Card Interchange Fees.”
The savings for customers led to increased consumer spending that increased the demand for goods and services while retailers put their share into hiring additional workers or business spending that created jobs. Together, the boost in economic activity supported the creation of 37,500 new jobs in both retail and other industries.
The study was written by internationally known economist Robert Shapiro, a former advisor to President Bill Clinton. It was prepared for the Merchants Payments Coalition, which was formed by NRF and other trade associations in 2005 to fight rising swipe fees.
The savings could have been larger, however, if the Federal Reserve had set the cap at its original proposal of no more than 12 cents per transaction rather than yielding to banking industry pressure and setting it at about 21 cents instead, the study said. The savings would have totaled $12.5 billion and 55,000 jobs would have been created, the study said.
The report comes two months after a U.S. District Court judge in Washington ruled in a lawsuit brought by NRF and other trade associations that the Fed set the cap far higher than the “reasonable” and “proportional” level intended by Congress, allowing banks to recoup costs that had been precluded by lawmakers. The Fed is appealing the ruling.
More also could have been saved if the Fed had structured the cap to avoid increases on small-ticket purchases, the report said. While the 21-cent cap was a reduction from the average of about 45 cents for most purchases, it was an increase from the average 16 cents on a $7.50 transaction, for example. Had small-ticket fees been capped at no more than their previous levels, merchants would have saved another $690 million and another 3,000 jobs could have been created.
The report estimated that retailers shared 69% of the savings with their customers, basing the calculation on earlier studies of how retailers typically pass on cost savings from vendors. The percentage came from a study of more than 23,000 cost reductions at 1,000 stores in more than 30 states.
The study looked at the macroeconomic impact of the debit savings rather than specific examples of how it was shared. But retailers have previously reported a variety of moves, such as debit discounts, reducing prices, avoiding price increases, holding larger or longer sales, and adding sales associates or expanding merchandise selection in order to improve customer service.
As the world’s largest retail trade association and the voice of retail worldwide, NRF represents retailers of all types and sizes, including chain restaurants and industry partners, from the U.S. and more than 45 countries abroad.