A Cup of Coffee For You = 23 Cents For Your Bank

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The Wall Street Journal reported that Visa and MasterCard plan to hike debit card fees (also known as interchange fees) for what are described as “small-ticket” transactions. “[T]he credit-card companies plan to increase the fees — which ultimately are paid to banks, not MasterCard or Visa — to 23 cents per transaction,” the article says. The card networks wouldn’t directly confirm the news, although the newspaper cited two financial analysts who wrote research notes addressing the fee hikes.

Right now, the Journal quotes an analyst who says that retailers currently pay around eight cents if a customer buys a $2 cup of coffee with a debit card. Obviously, eight to 23 is a huge leap, and it’s likely that stores will respond by setting minimum transaction limits for customers who want to use a debit card.

(MORE: How Debit Card Swipe Fee Changes Will Cost You)

A rule set out by the Federal Reserve in June caps debit interchange fees at 21 cents per transaction plus a fraction of a percentage of the transaction amount and up to a penny more for costs associated with fraud prevention. In its release about the rule, which goes into effect this Saturday, the Fed says this could bring the interchange fee on an average debit charge of $38 up to as much as 24 cents.

The Federal Reserve Board’s public affairs office had no comment when contacted about this story. I expect the trade associations that represent retailers — especially ones like convenience stores, where small-ticket purchases are the norm — will have quite a bit to say about this proposal in the near future.

(MORE: Coming Soon to Debit Cards Near You: Annual Fees, Fewer Rewards)

Consumers, too, are likely to do plenty of grumbling about the prospect of having to check their wallets (pockets, cupholders, etc.) to make sure they have enough cash for that cup of coffee. But numerous studies have shown that people spend more when they pay with plastic, so if you’re limited to cash, the temptation to overspend will be curtailed.

We also expect the argument that this fee hike will hurt consumers by inducing them to spend more and get their receipt above the minimum-purchase cutoff, but that’s a limited argument. Think about it: Would you really buy $10 or $15 worth of donuts just to meet the cutoff to pay for your cup of coffee on a debit card? Probably not. (And if you answered yes, your co-workers are probably thrilled to have you!)

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