Electronic Retailer - November 2011 - 44

BY KEN MUSANTE

CHANNEL CROSSING: PAYMENT PROCESSING

Durbin Amendment Equals Savings on Debit Transactions
The Durbin Amendment is an amendment to the Dodd pricing scheme. While the card networks may institute Frank Wall Street Reform and Consumer Protection a lower small ticket interchange program, that may Act. It was tacked on to the bill in the 11th hour and or may not occur. The fact remains, however, that protested mightily by big banks. Even after it was passed on most debit transactions the interchange will be as a part of the Dodd Frank Bill, it was targeted for substantially lowered. repeal and was narrowly defeated in early June. The The amendment only impacts the largest banks amendment calls for sweeping reductions in debit card with more than $10 billion in assets. Though the great interchange and remains the cause of great consternamajority of banks are below this threshold by number tion among big banks. Regardless, the reduction in debit of banks, the majority of transactions are from the card interchange went into effect Oct. 1. banks with more than $10 billion, and, consequently, Interchange is the fee the merchant or acquiring bank most debit transactions will be governed by the Durbin pays to the issuing or cardholder bank. It is the same Amendment. This will be across the board for all debit for all acquiring banks and is, by far, the single largest transactions, whether they be initiated via a PIN or component of your merchant processing fees. A typical signature or in person or remotely. With the proliferacredit interchange fee for an e-tailer or direct response tion of debit cards, debit transactions now outnumber merchant is 1.95 percent plus $0.10. Interchange is typicredit transactions. cally expressed in both a percentage and a fixed fee, Certainly the Durbin Amendment is more comoftentimes making it prohibitive for very low transacprehensive and covers other items not specifically tions at or below $5. Interchange may be as high as 3.17 related to interchange fees, but it is the reduction in percent plus $0.10. A typical debit interchange for an debit interchange that will most benefit direct-toe-tailer is 1.60 percent plus $0.15. There are hundreds of consumer merchants. different interchange categories, and the most expensive Merchants priced on a pass-through pricing methcategories include foreign or international cards, busiodology will notice the change immediately as their ness and commercial cards, high value reward cards, interchange costs are directly “passed through” to the and cards processed without the full fraud parameters merchant. Merchants on a tiered-pricing methodology for that specific transaction. Special programs exist may or may not notice the reduction depending on the for select merchant types, such as grocery stores and acquirer’s response to the reduction in the debit intergovernmental entities. Interchange is higher for credit change. This is where you can benefit. If you do not see card transactions than it is for debit card transactions a reduction in your discount by your October statement, and differs for the card-present industry versus the ask your acquirer. If you have large transactions, you card-not-present industry. Seventy to 80 percent of your should expect an even greater rate reduction. Ask you total discount fees are made up of interchange costs. payment provider to explain how the reduction in debit Because of the Durbin Amendment, the interchange interchange impacts your specific costs and what benefit fees on debit card transactions will be lowered by you will receive. approximately 50 percent to a cap of .05 percent + Ken Musante is president of Eureka Payments LLC. $0.21*. Though this is still being expressed in both a Reach him at (707) 476-0573 or email percentage and a fixed fee, the fixed fee is much larger kenm@eurekapayments.com. than today’s typical fee of $0.15 and the 0.05 percent is far lower than the current debit interchange level. Mathematically, Example 1: $50 average ticket this will lead to a much greater Current interchange (1.60% + $0.15): (50 x 0.016) + 0.15 = $0.95 (1.90%) reduction in rates for the larger Durbin interchange (0.05% + $0.21): (50 x .005) + 0.21 = $0.2205 (0.44%) transactions as identified at right. Savings: $0.73 The converse is also true, which Example 2: $250 average ticket is very small transactions will cost Current interchange (1.60% + $0.15): (250 x 0.016) + 0.15 = $4.15 (1.66%) more (as a percentage) under this Durbin interchange (0.05% + $0.21): (250 x .0005) + 0.21 = $0.34 (1.36%) * In some cases the fee will be 1 cent Savings: $3.81
greater at %0.05 + $0.22.

electronicRETAILER | November 2011

Electronic Retailer - November 2011

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