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What Does The Durbin Amendment Mean To Small Business Merchants In America?

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Post What Does The Durbin Amendment Mean To Small Business Merchants In America?   Sat Aug 13, 2011 10:20 am

The so-called Durbin Amendment was originally set to have taken effect on July 21st, 2011. This component of the Dodd-Frank Wall Street Reform and Consumer Protection Act was to have set a proposed maximum debit card interchange fee of 12 cents for both pin debit and signature card debit transactions, only for banks that had $10 billion or more in assets. This worked out to be a 70% reduction in the average debit card fee ($.44) according to the Fed.

The final rules issued raised the maximum Interchange fee to $.21 per transaction, with an additional allowance of 5 basis points of transaction value to account for fraud costs. And included an interim proposed rule to allow banks to charge an additional $.01 cent per transaction if they meet certain fraud prevention standards established by the Fed.

Bottom line, merchants remain the winners through these Interchange expenses decreases while issuing banks are still the biggest losers, but not as much as originally feared.

When Do The New Merchant Services Rules Go Into Effect?

The final rules will go into effect on October 1, 2011. But beware, only a small portion of the nation's merchant community will receive the benefit of the reduced fees beginning on October 1st. Most of the merchant population is at the mercy of their acquirer's pricing strategy as to the timing and the amount of reduced fee benefit they actually receive.

Beware Of Tiered or ERR Merchant Services Pricing Programs!

If your merchant services pricing program is tiered, or your merchant statement is coded with "BB" or "ERR," watch out! You are paying hidden mark-ups and down-grade fees that you are unaware of, and you will likely be receiving little, if any of the savings provided for by the Durbin Amendment.

How to Make Sure Your Merchant Services Provider is Passing the Durbin Savings On To You!

Only those merchants on a "True" Interchange Pass-Through pricing program will receive the full savings benefit. So make sure you are on an Interchange Pass-Through pricing program that passes all Durbin Amendment savings through to you. Ask your provider to be honest with you and tell you the truth that your merchant services pricing program has no hidden fees or markups, and that they have not raised their rates in 15 or more years. This helps to ensure that your merchant services provider is really passing through the savings to you, both today, and for many years into the future!

Will This Affect All Debit Cards?

Not all debit cards are affected by the Durbin Amendment. As mentioned earlier, smaller banks with less than $10 billion in assets are exempt from the new Fed ruling, so they may continue to charge at their current rates. For merchants, this means that the debit card presented by the consumer you run through the credit card machine determines what interchange fee you pay. Thus, there will be a two-tiered debit card pricing structure.

Limitations on Payment Card Network Restrictions

The law mandates that every debit card transaction has to be able to be processed on at least two networks, rather than one. What this means is an issuer is in compliance by having ONE network for processing signature debit and ONE unaffiliated network for processing pin debit transactions. And merchants are empowered by the law to direct the network routing as they see fit, in advance, with the acquirer.

In addition, for credit card payment transactions as well as debit, the law empowers merchants to restrict payments up to a minimum of $10 per sale and to set maximum payment amounts. The choice is now yours to make to better manage your payment card costs.

Beware of trying to select a lower cost processing network over a higher cost network without evaluating what, if any, additional fees exist for the service. And it is a dynamic market which routinely changes as the networks jockey their rates as they compete with each other. And now many merchant services providers are coming out with a new additional monthly fee charge for "lowest cost routing services", that will often increases your total costs per transaction and hurt, not help, your bottom line!

The only way to decide which network to select or if the additional costs for "lowest cost routing services" is worthwhile, rather than wasteful, is to analyze your actual transactions processed by network provider. What's "right" for one merchant may be very "wrong" for you, because the ultimate cost you pay is determined by the card product presented by your consumers. And those products vary widely by geographical region

Get Professional Help For Choosing The Best Processing Network

Make sure you choose a merchant services company that is able to perform a skilled merchant statement analysis by processing network, and has the knowledge base of what ALL of the available processing networks are charging for services, to determine which processing network is most advantageous to your business. This merchant services company should be honest, forthright, and transparent in its presentation, as well as financially sound in its analysis.

PIN Debit Cards In Greater Demand- Make Sure To Have a PIN Pad!

With the loss of debit Interchange revenue, the bloom is off of the signature debit card bush. The fat profits on the expensive to merchants "rewards" cards are long gone. Pin debit only allows a transaction to go through if the card can be read electronically, the pin matches, and there is adequate money in the account. These three security measures help fight fraud and lower costs for banks that issue debit cards. Issuers will want the added protection against fraud that pin debit products offer, so expect to receive many more pin debit card presented for purchases at your store. Merchants also enjoy less exposure to charge-backs, stolen cards, disputes, etc. with pin debit.

If you don't already have one, make sure to purchase a pin pad from your merchant services provider to go with your credit card machine.

MerchantService.com provides leading edge credit card processing and business management solutions to merchants through a consultative approach by educating merchants on credit card interchange fees and practices to ensure they are receiving the best possible rates when accepting electronic payments. MerchantService.com delivers expertly consulted merchant services with a focus on increasing merchant bottom-line profits.

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