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Debit Card Swipe Reform Boosts Minnesota Economy

Study shows $108 million in lower consumer prices, with the potential for more.

According to a new economic report released today by the Merchants Payments Coalition (MPC), debit card swipe fee reform has accomplished much of what Congress intended when it passed debit reform legislation in 2010 by pumping a significant infusion of savings and jobs into state economies across the country.

The report—The Costs and Benefits of Half a Loaf: The Economic Effects of Recent Regulation of Debit Card Interchange Fees—can be found at

In Minnesota, the lower debit card swipe fee, which the Federal Reserve dropped from 48 cents per transaction to 24 cents, allowed Minnesota merchants to reduce costs, saving consumers nearly $108 million and spurred the creation of 690 new jobs in 2012. 

The report also measured the potential impact on the U.S. economy had the Federal Reserve followed the language of the law.  The Federal Reserve, for example, originally proposed a rate of at most 12 cents per debit swipe.  In Minnesota alone, $51 million would have been generated in consumer savings along with an additional $23 million in merchant savings and this would have been sufficient enough to support an additional 328 jobs.

Had credit card swipe fees been reduced to 24 cents per transaction, Minnesota consumers would have saved an additional $283 million, merchants would have saved another $127 million, and 1,815 new jobs would have been created last year.

From the study, it’s clear that debit card swipe fee reform lowered prices for Minnesota consumers, and its effects are positive for our main street retailers across the state. But we can’t stop now. It’s important keep swipe fee reform moving forward so retailers can continue to pass along savings through lower prices. Lower prices encourages consumer spending, and right now we need that spending to continue to positively drive our community, state, and national economies.

Swipe fee reform is just what small business owners, who historically have been the primary drivers of job creation in the U.S., need as it would boost their cash reserves and allow them to invest in their stores and expand their employee base.

In addition to the economic report, MPC also released state-by-state numbers for consumer savings, merchant savings and jobs with swipe fees reduced to 24 cents for both debit and credit cards and to 12 cents for debit cards. MPC calculated the state-by-state numbers by distributing them proportionally to states' share of the U.S. gross domestic product.

The report was compiled by internationally-respected economist and advisor to Presidents, Prime Ministers and Fortune 100 companies Robert Shapiro of Sonecon LLC. Shapiro analyzed the Durbin Amendment of the Dodd-Frank “Wall Street Reform and Consumer Act,” which was created to rein in runaway swipe fees levied on merchants and consumers every time a debit card was used to pay for a purchase. 

Viewed from a national perspective, the savings and jobs numbers are significant and would help revive the country’s sluggish economic recovery. The major findings of the report include:

•    Reducing the cost for merchants to swipe debit cards put $5.8 billion back into the hands of consumers across the country through lower prices, which led to increased spending and helped create 37,501 new jobs in 2012. Merchants realized savings of $2.6 billion.

•    These savings and job gains, however, could have been substantially larger had the fee been cut to 12 cents as originally recommended by the Federal Reserve. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion in merchant savings and 17,824 more jobs would have been created.

•    If credit card swipe fees had been reduced to 24 cents, consumers and merchants would have realized an annual savings of $22.3 billion, generating a total of 98,600 jobs every year.  All told, with improved debit reform and credit reform, the savings to consumers and merchants would be $34.9 billion and nearly 154,000 jobs would be created annually.
Making debit card reform consistent with the law we already have and reforming credit card swipe fees would be a tremendous boost to Minnesota. We need the lower prices and jobs that full swipe fee reform would give us now.

Credit card swipe fees continue to gouge merchants and consumers.  The fee, which can be as high as four percent of the transaction and often exceeds what the merchant earns on the sale, is the second highest operating expense for merchants, trailing closely behind labor costs.  Consequently, merchants often have no choice but to pass a portion of this expense down to consumers in the form of higher prices irrespective of their form of payment. 

As it stands now, Americans pay the highest swipe fees in the industrialized world, eight times more than in Europe.  Although the cost to process these transactions has fallen given improvements in technology, the swipe fee for credit cards continue to skyrocket.  All told, swipe fees generate approximately $50 billion for banks every year.  Visa and MasterCard, who together control 80% of the card market, set these fees in secret so that banks don’t compete on price.

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About the Author

Bruce Nustad

Bruce Nustad is president of the Minnesota Retailers Association.

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