Credit networks could lose billions on proposed swipe fee rule

A proposed rule from the Federal Reserve Board would alter current transaction fee rules so that networks could only charge a percentage of the purchase price, usually between 1 and 5 percent, when consumers take on credit card debt to make a purchase, according to a report from Bloomberg News. Meanwhile, debit transactions would cost merchants only a flat rate of just pennies.

Because of this, a purchase of $1,000 made with a credit card will still net lenders about $20 or so, while a similar purchase made with debit will only earn the new cap level of 12 cents, the report said.

Prior to the implementation of the newest regulations, credit networks were allowed to prevent companies from encouraging customers to pay with cash or other options that would result in lower transaction fees. But now, this practice is allowed, and it's likely that merchants will try to implement it in an effort to save money, the report said.

If approved, this latest change could spell huge losses for all credit networks, but it would affect American Express the most, because the company does not issue debit cards, the report said. The lender could lose as much as $38 billion a year as a result of consumers relying more heavily on debit and cash rather than taking on credit card debt.

"American Express is increasingly exposed," Chris Brendler, an analyst at Stifel Nicolaus recently wrote to clients, according to the report. "This significantly increases the threat of discounting as merchants will have much greater incentive to push consumers toward lower-cost debit cards."

However, some studies have found that consumers may not be receptive to companies that ask them to use certain payment methods, the report said. In one, 84 percent of respondents said they would be unlikely to continue patronizing a business if an employee tried to persuade them to use something other than their preferred payment method.

Merchants have long objected to these transaction fees because they cost even small, privately-owned companies as much as tens of thousands of dollars a year.