After the U.S. Senate voted in favor of limiting debit card swipe fees, banks are licking their wounds and looking at strategies to make up for the heavy losses that will come with the ruling.

On July 21, this policy will limit swipe fees to 12 cents per purchase transaction. The policy will benefit small businesses by dropping swipe fees by a huge 32 cents per transaction. It is a significant victory for small businesses who are struggling to survive this tough economy. However, the ruling will negatively affect bank revenue and profits and consumers may be caught in the middle.

Swipe Fees

Creative Commons License photo credit: eric731

Banks are expected to lose $16 billion in annual revenue because of the changes in how the swipe fees are calculated. Prior to the ruling, banks were charging 1%-2% of the total amount of the debit transaction. Based on that process, the average debit card swipe fee was 44 cents. Now, banks are limited to charging a flat 12 cents per transaction.

Because of these severe losses, consumers may have to deal with the consequences. Limits on credit card rewards, increased banking fees, and reduced credit limits may be the only solutions for banks to recover from this critical hit. Although small businesses will profit greatly, the affect on the consumer may be an overall negative. In lobbying for this change, merchants have stated that they will pass along a lot of their savings to the consumer through lower prices. However, that is still an unknown.

With bank revenue taking a big hit, it is possible that bonuses for getting a new credit card will disappear. Cash back rewards and point systems may also be limited. In addition, debit cards without annual fees may cease to exist.

According to recent reports, JPMorgan Chase, which expects to lose $1 billion of revenue each year in extra swipe fees, may limit debit card transactions to $50 or $100 each. If Chase follows through with this proposal, consumers will be limited to cash, checks, and credit cards for purchases exceeding their limit.

Even with so much at stake, the poll paid for by the Retail Industry Leaders Association, found that voters in six states would take a more negative view of their senators if they voted to delay implementation of the swipe fee limits. The greatest number of voters in favor of the new rules were in New York where 49% said they would view their senators less favorably and only 32% said they would view their senators more favorably for voting to delay the new rules.