Board of Governors of the Federal Reserve System

The Federal Reserve Board on Thursday published a report on debit card transactions in 2017, including information on volume and value, interchange fee revenue, certain issuer costs, and fraud losses. The report is the fifth in a series published every two years pursuant to section 920 of the Electronic Fund Transfer Act (EFTA).

Section 920 also imposes limits on interchange fees that debit card issuers can receive on an electronic debit transaction. The Board's Regulation II (Debit Card Interchange Fees and Routing), which implements section 920, provides that a debit card issuer subject to the interchange fee standard (a covered issuer) may not receive an interchange fee that exceeds 21 cents plus 5 basis points multiplied by the value of the transaction, plus a 1-cent fraud-prevention adjustment, if eligible. The regulation does not apply to debit card issuers with consolidated assets of less than $10 billion, certain government-administered debit cards, and certain prepaid cards. The interchange fee standard became effective on October 1, 2011.

As in prior years, covered issuers' costs of authorizing, clearing, and settling (ACS) debit card transactions, excluding issuer fraud losses, varied greatly across respondents in 2017, with the issuer at the 25th percentile having an average ACS cost of 4.2 cents and the issuer at the 75th percentile having an average ACS cost of 18.5 cents. Issuers with the highest debit card transaction volume generally had the lowest ACS costs per transaction. The average ACS cost per transaction for covered issuers was 3.6 cents per transaction, down from 4.2 cents per transaction in 2015.

Debit-card fraud losses to all parties (merchants, cardholders, and issuers) were 11.2 basis points as a share of transaction value at covered issuers in 2017, up from 10.3 in 2015. The median covered issuer's average fraud loss as a share of transaction value was 5.3 basis points, down from 6.6 in 2015. The median covered issuer had average fraud prevention and data security costs of 1.5 cents per transaction, down from 1.7 cents in 2015.

In 2017, 76 percent of covered issuers had average ACS costs, including issuer fraud losses, below 21 cents plus 5 basis points of the value of a transaction (the base component of the interchange fee standard). This proportion is higher than the 65 percent of covered issuers with average ACS costs below the maximum interchange fee in 2015. Covered issuers with average ACS costs below the maximum interchange fee in 2017 processed 99.7 percent of all reported covered transactions, up from 99.5 percent in 2015.

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