Debit Card Processing and Regulation
Whenever a customer swipes a debit card at one of your POS terminals, that transaction results in an interchange fee that you must pay to the card-issuing bank. Historically, these fees have averaged about $0.44 per transaction; and like most charges, the cost is ultimately passed onto consumers.
However, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, legislators introduced the Durbin Amendment in 2010. Thanks to this bill, retail stores now pay closer to $0.21 per swipe if the card-issuing bank carries $10 billion or more in assets.
How Does the Durbin Amendment Affect Consumers?
In theory, the Durbin Amendment is supposed to save consumers money. With lower interchange fees paid by merchants, there are fewer charges to pass on to end users.
Though according to George Mason University, retail prices haven’t changed dramatically after passage of the Durbin Amendment. In fact, consumers may actually pay more due to “hidden” charges.
Unable to collect as much money through interchange fees, card-issuing banks began exploring other ways to replace an estimated $14 billion in lost revenues.
Common strategies include:
Reducing card-based perks and rewards.
Eliminating free checking and other complimentary services.
Increasing consumer banking fees.
Introducing monthly account charges, including inactivity fees and minimum threshold penalties.
What Effect Has the Durbin Amendment Had on Retailers?
Merchant reviews of the Durbin Amendment have been mixed, with opinions largely determined by retailer size and transaction amount.
Once the Durbin Amendment passed, banks began consolidating their services and eliminating many of their most popular solutions. As a result, smaller retailers now have fewer banking options from which to choose.
By contrast, larger retailers often bring more clout to the negotiation table, making it easier to qualify for better rates and receive custom-designed payment solutions that are unavailable to smaller or low-volume retailers.
When processing purchases over $38, swipe fees have gone down — about 45 percent on average. Yet when handling smaller transactions, many retailers now find themselves paying substantially higher interchange fees than they did before.
This is because most banks have abandoned traditional percentage-based pricing in favor of using maximum thresholds for smaller purchases. A $4 widget, for example, might result in a fixed charge of $0.21 instead of using 1 to 3 percent of the transaction amount.