VISA and Mastercard are planning to sharply raise the debit card transaction fees for small purchases for merchants, according to an analyst note. A $2 cup of coffee incurs about an 8 cent fee currently, but under the new policy, the fee will hike to 23 cents.

The Federal max cap on debit card fees is 24 cents. So banks are effectively treating the ceiling as the floor.

The move will “kill the economics for small ticket debit purchases and influence a shift back to credit cards,” Janney Capital Markets analyst Thomas McCrohan wrote in a note to clients, as reported by the AP.

Credit cards are not covered under recent regulation that put a cap on the fees merchants can be charged by banks to process debit card transactions.

McCrohan warned that if the price jump goes through, it “will almost certainly lead to a merchant revolt against the card networks.”

This should encourage the proliferation of more signs mandating minimum purchase amounts when using a plastic card. And you can be sure the overall transaction costs will get passed on to your wallet.

The Retail Industry Leaders Association told Consumerist that the Federal Reserve’s 24 cent fee cap is almost double what the Reserve had initially proposed, and was six times higher than what the Reserve’s own data showed was the actual transaction processing cost.

“Unfortunately the Federal Reserve ignored its own data when it finalized implementation rules, weakening the congressionally-approved reforms and giving license to Visa and MasterCard to raise — not lower — the fees some merchants face,” said RILA President Sandy Kennedy. “RILA will continue to fight to fix the broken swipe fee system and bring transparency, competition and relief to all retailers and their customers.”

The interchange fee regulations go into effect this Sunday, October 1st.

As always, there’s no fee for using cash.

Analyst Note: Visa, MasterCard may hike debit cost [AP]

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