Fed report: Interchange fees in 2017 grew by 5.9%; transaction volume rose too, but more slowly than previous period

Interchange fees across all debit and general-use prepaid cards (exempt and covered) totaled $20.73 billion in 2017, an increase of 5.9% since 2016, the Federal Reserve said Thursday.

In its report, 2017 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions, the Fed also said that the average interchange fee for covered transactions on both dual-message and single-message networks, in addition to the average interchange fee for exempt transactions on dual-message networks, has not changed materially since Regulation II took effect in the fourth quarter of 2011. The fees, the Fed said, stood at $0.23 and $0.52, respectively, in 2017. “By contrast, the average interchange fee for exempt transactions on single-message networks has been falling gradually since Regulation II took effect, from $0.31 in the fourth quarter of 2011 to $0.25 in 2017,” the Fed said.

Interchange fees are those fees set by the network, charged to acquirers, and received by issuers as part of a debit card transaction.

The Fed is required by the Electronic Fund Transfer Act (EFTA) to publish data every other year on costs incurred, and interchange fees charged or received, by debit card issuers and payment card networks. The Fed uses the information it collects to enforce its Regulation II, Debit Card Interchange Fees and Routing. The first report was issued in 2011; the most recent was in 2016 (presenting data collected the previous year).

The Fed also reported that network fees totaled $7.03 billion in 2017. Acquirers paid 63% of fees, and issuers paid the rest. The report noted that, in recent years, the percentage paid by acquirers has increased slightly while the percentage paid by issuers has decreased.

The average network fee per transaction was $0.103 in 2017, which the Fed said has not changed substantially since 2011.

Dual-message networks have traditionally processed mainly signature-authenticated transactions, the Fed noted. The networks accounted for 64.9% and 65.1% percent of the total by volume and value, respectively. Single-message networks, which the Fed stated typically process PIN-authenticated transactions, accounted for the rest of the transactions.

In other highlights, the Fed reported:

  • The average network fee per transaction was $0.103 in 2017, which has not changed substantially since 2011.
  • Payments and incentives offered by networks grew 4.9% since 2016, totaling $1.61 billion in 2017. Issuers received 58% of payments and incentives in 2017; acquirers and merchants received the rest.
  • Fraud losses to all parties (as a share of the transaction value) from debit and prepaid cards were 11.2 basis points (or $11.20 per $10,000 in transaction value) up from 10.3 basis points in 2015.
  • Merchants absorbed 53% of fraud losses (up from 39% in 2015); issuers absorbed 42%, down from 58% in the previous report.
  • Payment card networks processed 68.5 billion debit and general-use prepaid card transactions, for $2.62 trillion in the United States in 2017.
  • Total transaction volume grew 5.6% from 2016 to 2017, slower than the 7.0% growth recorded from 2015 to 2016, the Fed said.

Federal Reserve Board publishes report containing summary information on debit card transactions in 2017