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

New swipe-fee rules for debit cards take effect in October, which will mean lower costs for retailers. In some cases, they might pass those savings on to consumers.

But before you whip out a debit card to make your next purchase, consider the downside. Banks are already adjusting to the prospect of losing swipe-fee revenue. That means fewer perks for many bank customers.

For example: Chase’s debit rewards program is set to expire, and many other banks have already done away with the once-ubiquitous perk. Free checking is now more likely to come only with a minimum balance, minimum usage, or online-only requirement. And some banks are considering ways to push customers to use their credit cards, perhaps instituting a $50 or $100 per-transaction limit on debit cards. (Swipe fees for credit cards aren't capped.)

Wealthy consumers will still be winners when the so-called Durbin Amendment takes effect. They will continue to earn rewards on their credit cards and they'll have the minimum balances necessary to enjoy free checking. The poor, on the other hand, will be less likely to qualify for free checking and they will lose out on debit rewards.

Will retailers lower their prices? That was the hope when Congress passed the Durbin amendment, a hasty addition to the Dodd-Frank reform bill, last year. It's not clear they will lower prices.

Retailers are the most likely victors of the reforms. Merchants from gas stations to boutique stores are subject to swipe – or interchange – fees, a charge levied by card networks every time a customer uses debit or credit. Unfortunately, the two dominant players, Visa and MasterCard, can pretty much dictate their chosen prices. The largest stores, such as Walmart and Target, can negotiate lower swipe fees, but smaller retailers with no such bargaining power must hand over a higher percentage of each transaction to the credit-card companies. Banks that issue the cards receive the largest cut of those swipe fees.

Thus, the average debit transaction of $38 cost a retailer an average 44 cent interchange fee. Under the new rules of the Federal Reserve, that fee would be capped at 21 cents, plus 0.05 percent of the transaction, with the possibility of charging 1 cent more if certain security – or a grand total of 24 cents. That's double the 12 cents the Fed originally proposed, before intense lobbying from the banking industry to push up the fees. Still, it's a significant loss of revenue.

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.