Debit, prepaid card transactions slowed down in 2021-23 – but interchange fees grew, Fed report finds

Debit and general-use prepaid card transactions grew at a slower rate in the period 2021-23 than previous periods, the Federal Reserve said Friday, and interchange fees have been rising.

In its biennial, statutorily mandated report on debit card transactions, summarizing information collected from large debit card issuers and payment card networks, the Fed said debit and prepaid cards transactions expanded at an average rate of 4.6% in both volume and value – “significantly slower” than the 2009-21 average rate of 7.8% in volume and 9.5% in value.

The report issued Friday provides data on interchange fees, issuer costs, and fraud losses related to debit card transactions performed in 2023.

The report also notes that interchange fees are rising. In 2023, the report states, the fees across all debit and general-use prepaid card transactions totaled $34.12 billion, an average increase of 3.9% per year since 2021. That increase has largely been driven by transactions exempt from the agency’s Regulation II.

“For transactions covered by Regulation II, the average level of interchange fees has not changed materially since the regulation took effect in the fourth quarter of 2011,” the agency said. “In 2023, the average interchange fee for covered transactions processed over single-message networks was $0.24, while that for covered transactions processed over dual-message networks was $0.22.

For transactions exempt from Reg II, a steady increase in fees is noted in the report. “The average interchange fee for transactions exempt from Regulation II was $0.52 in 2023. Across data collections, the average interchange fee for exempt transactions gradually increased from $0.43 since the regulation took effect to $0.52 in 2021, and remained steady through 2023.

“For exempt transactions processed over dual-message networks, the average interchange fee fell from $0.64 in 2021 to $0.62 in 2023, marking a reversal of the upward trend that saw this value gradually increase from $0.51 in the fourth quarter of 2011 to $0.64 in 2021. By contrast, for exempt transactions processed over single-message networks, the average interchange fee gradually fell after Regulation II took effect, from $0.31 in the fourth quarter of 2011 to $0.25 in 2017, and has since gradually increased to $0.27 in 2023.”

Federal Reserve Board publishes its biennial report on debit card transactions, which summarizes information collected from large debit card issuers and payment card networks