Debit swipe fee limits are a win-win for small businesses and small banks

As the owner of two family restaurants that cater to a daytime business clientele, I know a thing or two about serving up a good lunch. And, in the run-up to Wednesday’s Senate vote on the amendment to delay new rules limiting debit swipe fees, I had a sinking feeling in the pit of my stomach that big banks were going to eat our lunch ... again.

But, to my surprise and delight - and thanks in large part to small business owners from Maine to Iowa to Washington State who contacted their Senators and make their voices heard - Wall Street bankers didn’t win this time. They didn’t eat our lunch.

While 54 Senators voted for the bank-backed amendment, it needed 60 to pass, and we had a broad bi-partisan show of support on our side. But I'm sure this fight isn't over, and that's why it's important to keep pointing out the facts of swipe fees and why small businesses need these new rules to take effect on schedule in July.

As a small business owner, there are certain costs of doing business that are beyond my control. The cost of accepting plastic as a form of payment is one of them. And that cost has been going up and up.

Most people probably don't realize that debit cards cost small businesses significantly more than checks, even though a debit transaction is basically an electronic check. But for each debit card transaction, multiple "middle men" each get a cut: the business owner's bank, the interchange network (usually Visa or MasterCard), and the customer’s bank.

By the time the merchant is paid for his or her service or merchandise, the amount we end up with can be reduced by several percent. Often, it feels like we’re making more money for big banks than we are for ourselves.

Swipe fees serve two major purposes: to cover the cost of doing business, and as a sort of insurance policy against the risk assumed in processing debit transactions.

As a business owner, I understand paying for services. However, these fees, controlled by huge banks and the Visa-MasterCard duopoly, have become exorbitant over the past few years. Visa-MasterCard (which control a combined 86 percent of interchange transactions) and banks charge and average fee of 44 cents per transaction - even though the cost to them is about four cents.

Small businesses have had no leverage to negotiate on these fees. And, as Americans increasingly use debit cards rather than cash, most businesses have no choice but to accept them or go out of business. As a result, the biggest Wall Street banks have continued to amass astronomical wealth on the backs of Main Street businesses.

The Durbin amendment in last year’s financial overhaul limited debit transaction fees to a "reasonable and proportional" standard for big banks (about 12 cents per transaction, or 300 percent of the actual cost of the transaction), while exempting small banks with less than $10 billion in assets.

The amendment voted on in the Senate Wednesday would have delayed the new rules for at least a year, and possibly spelled their demise altogether. It would have put small businesses like mine on hold, letting the big banks and card networks walk away with another $1.3 billion in debit fees for every month of delay.

Thankfully, enough Senators recognized that blocking the new rules would be a big mistake. Capping big banks' swipe fees is a win-win for small businesses, who will pay dramatically less in fees, and small banks, who will be able to continue charging their current fees and have a leg up on the big guys.

Swipe fees have received eight congressional hearings and have been studied by the nonpartisan Government Accountability Office three times. Each study concluded the same thing: the swipe fee system is broken and it needs reform.

Congress finally passed swipe fee reform last year. It needs to let its own work take effect, putting those billions of dollars back in the hands of small businesses and our customers to boost our local economies and create jobs. And thanks to the Senate’s vote Wednesday, it will.

Mike Craighill and his wife Antonia own the Soup and Such restaurants in Billings, Montana. They are members of the Montana Small Business Alliance.