The Durbin Amendment is an addendum to the Dodd-Frank Financial Reform and Consumer Protection Act. The Act has the overarching goal of consumer protection while promoting economic growth. The Durbin Amendment promotes these goals through capping the interchange fee for debit card transactions.
An interchange fee is the amount paid between merchants and banks to facilitate a consumer using a swipe card at the merchant’s business. This fee is used to cover administration and fraud prevention costs. The Durbin Amendment caps the interchange fee for debit cards at 21 cents plus 0.05% of the transaction. Merchants pay this fee for the privilege of having customers use their debit cards to pay for merchandise.
The electronic payments system is an economy in itself. This means that one factor cannot change without changing all other factors. There are consequences of changing the debit card fees, and some of these consequences will greatly affect the way you, the merchant, does business. These changes will span from debit cards, through gift cards, credit cards, and cash payments.
What merchants can profit from these changes?
The Durbin Amendment is promoted as being beneficial to merchants because it could lower the cost of doing business. The Durbin Amendment caps the debit card interchange fee so that the cost of having a customer pay for his or her purchase with a debit card is lower than the cost before the Amendment. This theoretically allows the merchant a higher profit margin.
For the savvy merchants, the Durbin Amendment allows them to lower prices and draw in new customers without changing their profit margins. If the debit card fee is set at a certain price then some merchants may be able to pass on savings to their consumers.
It falls upon each business owner to ensure he or she is saving money. These owners are calling providers to find out about changes in pricing methods resulting from the new Durbin Amendment. To try to take advantage of these new lower debit fees, merchants are out looking for new contracts with processing providers. For merchants, switching providers or shopping for new contracts can be the best way to profit from the fee restrictions.
What difficulties will arise from the Durbin Amendment that merchants should be aware of?
The Durbin Amendment has created new challenges for merchants. Merchants have previously always born the cost of consumers using debit or credit cards, through processing fees from the banks. With the new restrictions on fees for swipe cards, consumers are beginning to bear the costs of using a debit card to make purchases, through changes in their checking account fees.
The Durbin Amendment is only intended to change caps on debit card interchange fees, and not on credit card interchange fees. Because of this, banks are dis-incentivizing debit card use, and attempting to promote credit card use. So the lower debit card interchange fee may have less impact, because debit cards could have less use. Which means some merchants will be hard pressed to benefit from the Durbin Amendment.
The merchants who may face difficulties will include both large and small companies. Any company which processes transactions with a low dollar amount, such as coffee shops, small stores, cafes, and similar businesses, may find an increased cost, despite the debit card processing fee cap. Whether a large business or a small one, merchants with low ticket prices may find debit card usage has an increased cost of approximately eight cents per transaction.
Additionally, merchants may find they have more consumers avoiding using their debit cards to avoid potential bank fees. Merchants may see either a higher rate of alternative payments (credit card, cash, gift cards) or may see less purchasing occurring. You can read an impartial in-depth analysis of the challenges your company may face here.
Generally, merchants can be proactive to prevent losses and common pitfalls in the changing electronic payments market. To avoid selling less, merchants should make using any form of alternative payment easy for consumers. My POS Depot provides services to help you to use credit cards and gift cards to your advantage, and avoid losing sales.
How can My POS Depot Help the Merchant Benefit?
The Durbin Amendment is only just beginning to take effect. It has been in place for less than two months, and so opportunities to benefit from this change in legislation abound. Debit card usage is still on the rise and more and more small businesses are trying to maximize debit transactions.
Small businesses who want to benefit from the Durbin Amendment, and to lower costs can do so by finding business payment processors which will be able to explain how their pricing was adjusted to fit the Durbin Amendment. My POS Depot has changed their pricing system and representatives can help small businesses and merchants to understand and maximize the positive effects the Durbin Amendment could have on their business transaction processing.
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Grant Rowlands
National Account Executive
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