Retailers Affected by the Durbin Amendment
The use of debit cards has traditionally come at a high price to retail merchants. Retailers have paid upwards of $48 billion a year in "swipe fees," with nearly $17 billion of that coming from debit card transactions. Transactions processed by debit card had required retailers to pay fees, which resulted in large profits for banks, which would use such profits to create incentives such as free rewards checking.
However, the Durbin Amendment, enacted on Oct., 1, 2011, lowered the fees paid by merchants for debit card transactions by nearly 50 percent. But many card transactions processors have ignored provisions of the amendment by keeping the savings in fees as profit for themselves.
Previous to the Durbin Amendment, retail merchants paid an average of 44 cents to process every debit card transaction. Since the enactment of the amendment, these fees have been limited to 21 cents plus 0.05 percent of the transaction (an average of 2 cents). With the money that's now being saved from lower fees, there's been much debate about which party in the transaction should keep the profits. Although the amendment originally intended that merchants would save money, some middlemen (e.g., card processing companies) do not pass on these savings to the merchants, but rather keep the profits for themselves.
Tips for Large and Small Retailers
- Large retailers: This group has greatly benefited from the decreased interchange for debit cards. However, there are merchants that are still not knowledgeable on the interworkings of the legislation. Have your merchant service provider (MSP) educate you on the legislation and the best way for you to take advantage of it.
- Small Retailers: These companies received a small benefit for the decreased interchange for debit cards. This is in part due to a lack of education on merchants' behalf. In order to take full advantage of the benefits of the Durbin Amendment, merchants need to partner with a MSP that focuses on educating them on legislation, technology and trends.
Last year saw an increase in credit card and pre-paid card transactions from consumers to retailers and an overall decrease in debit card usage. The main reason for this is that consumer banking fees have gone up as issuers have shifted the loss revenue to higher bank account fees substantiated through higher free checking minimums and eliminating debit card reward programs.
Although this process of deciding where the savings accrue isn't closely monitored, turning over profits to merchants has a positive impact on the economy. Higher profits allow merchants to offer goods and services at lower prices to consumers, while still maintaining operations and continuing to expand in offerings.
Cleveland Brown is the CEO of Payscout, a global merchant processing company.