Debit cards to get lower swipe fees. But will consumers benefit?

The Fed will also attempt to break the Visa-MasterCard duopoly in order to drive swipe fees down to competitive prices. Merchants must be able to process each debit card on at least two independent networks. Because the legislation exempts small institutions (those with less than $10 billion in assets) from the cap on swipe fees, the credit card networks must be able to differentiate exempt from nonexempt banks.

The Fed has argued that merchants in low-margin, competitive sectors – like convenience stores – will pass most of the debit savings along to their customers, while those in less competitive areas will pocket the savings. But even the Fed says it is “uncertain” whether consumers will benefit overall.

The impact on consumers who bank at exempt community banks and credit unions is also up in the air. So far, most institutions with assets under $10 billion have held off changing their products. But in a February 2011 survey, nearly half of surveyed credit unions said they were considering eliminating free checking in the wake of the Durbin Amendment. The same number is considering ending rewards checking.

For all the controversy surrounding debit fees, credit cards are far more costly to retailers. A Visa Signature swipe fee can be twice that of a debit card. But the new law doesn't cover credit cards. Although merchants may want to pass on the savings, they will still be forced to keep prices higher than otherwise, in order to compensate for credit card swipe fees.

Prepaid debit cards, which the federal government often uses to issue benefits, also escaped regulation. The cards have a reputation for carrying onerous and well-disguised fees. Once the province of the unbanked, prepaid debit is moving into the mainstream. American Express recently introduced a new prepaid card with markedly lower and simpler fees, hoping to earn money on interchange revenue rather than charging cardholders directly. Other issuers are starting to follow suit.

Merchants are likely to continue to issue their own financial products, hoping to earn revenue more from store traffic than from interchange. Target already offers its own credit and debit cards, though they can only be used in its stores. Walmart offers its own credit card with special features designed to encourage spending, and the Walmart MoneyCard, a prepaid debit card, can only be reloaded for free in the store, or via direct deposit.

The Durbin Amendment will help the consumers best able to adapt to those changes: wealthy rewards cardholders who will benefit from any lowered prices but will not be affected by more expensive checking accounts. Poorer consumers will bear most of the negative consequences.

– Tim Chen is the CEO of NerdWallet, a credit-card search website.

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