Congress has already passed a law curtailing the fees banks receive each time a debit card is swiped, and the Federal Reserve has drafted new regulations governing the details of the transactions.
But for a banking industry ready to scrap for every penny, the fight is far from over.
At stake are billions of dollars in revenue, and banks say the potential losses under the new federal rules already are prompting them to scale back popular consumer perks such as free checking accounts and debit card reward programs. They have sent letters to lawmakers and filed comments with the Fed. And in a hearing Thursday before a House subcommittee, they plan to ask Congress to delay implementing the new system or repeal it altogether.
"The harm that will result from the proposed rule is very real and immediate - for banks, for consumers and for the broader economy," Frank Keating, chief executive of the American Bankers Association, a trade group, said in a recent statement. "Our members have made it clear that this rule should not go forward."
How much of the cost to process debit cards should be borne by merchants and banks has long been a sore point between the two industries. Currently, banks receive an average of 1 to 2 percent of each debit card purchase, totaling $16.2 billion in 2009.
The transaction itself, an electronic transfer from the customer's checking account to the merchant, costs only a few pennies to conduct but requires a sprawling infrastructure to support it. Proposed rules written by the Fed would cap the swipe fee at 12 cents - a roughly 70 percent reduction.
In some cases, retailers say, the current fees can be higher than their profit on a purchase, and lawmakers argue that the charges drive up costs for shoppers.
"The system is unfair to consumers, who pay tens of billions per year in fees passed on to them in the form of higher retail prices," Sen. Richard J. Durbin (D-Ill.), the second-ranking member of the Democrat-controlled Senate, wrote in a letter to the American Bankers Association this week. "And it is unfair to merchants, who cannot negotiate" over the fees. Durbin sponsored the "swipe fee," or interchange, provision as part of the financial regulatory overhaul passed last summer.
Banks say the pendulum has swung too far. The proposed fee, which may fall as low as 7 cents per transaction, is not enough to recoup the full cost of the necessary computer infrastructure or provide security and fraud protection, bank and card industry officials contend.
Visa's data processing center in Northern Virginia, where millions of transactions are processed each day, is built to weather a Category 4 hurricane, and the rooms housing the most complex equipment can withstand a blast from a hand grenade. More than 100,000 gallons of diesel fuel are stored on site to run two large generators - enough to power a town of 72,000 people. Two rooms of batteries back up the generators.
"All this exists to make sure no transaction is harmed," said Michael Dreyer, Visa's chief information officer. "We don't have the option of not being on."
According to Jaret Seiberg, a policy analyst with MF Global, persuading the Fed to increase its cap by a few cents to account for security and fraud costs may be as much as banks can hope for. The Fed has said it is still considering the issue and may develop a separate proposal to address it.
Community banks have also been vocal on the issue, arguing that an exemption for institutions with assets of less than $10 billion does little to mitigate the law's impact on them. Card processors may choose not to set different interchange rates for smaller banks, they argue, though Visa has established two tiers. Community banks are also worried that the Fed's attempts to drive competition between processors could result in lower fees all around.
In a survey of its members, the Independent Community Bankers Association found that 72 percent would begin charging annual or monthly fees for debit cards once the law takes effect. One-fifth said they may eliminate jobs or curtail growth.
"The market is going to find an equilibrium," said Jason Kratovil, vice president of congressional relations for the association.
The Fed is expected to issue its final regulation in April, and the law requires that it take effect by July 21.