How to make sure you get your debit card fee reduction

How to make sure you get your debit card fee reduction

U.S. merchants should feel pretty good about the passage of the Durbin Amendment, which will cut the fees big banks can charge them for debit card transactions. But just how much meat is on the bone, from a card fee point of view, and how can merchants gain maximum leverage?

The legislation, set to roll in October 2011, knocks the industry debit card fee from an average of 44 cents per transaction to no more than 21 cents per transaction. That's a good deal for retailers, analysts say. However, it doesn't mean retailers are guaranteed to immediately pocket those savings.  

That's because the Durbin Amendment requires banks to lower the debit card processing fees they charge merchants, but it doesn't require merchant account providers to do the same. As a result, merchant account providers aren't required to pass on those savings to merchants. 

"Issuing banks are still the 'biggest losers,' but not by as much as originally proposed. And merchants remain the winners, yet it's highly unlikely most merchants will receive the benefit of the savings because of the acquirers' pricing strategy," said Gino Kauzlarich, co-founder and owner of merchant account provider MerchantService.com, in a blog post about the new rules. 

In most cases, merchants will have to go through their merchant services provider to get the fee break for the debit cards, and there are some obstacles and landmines that retailers will want to avoid along the way.

"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," wrote Kauzlarich. "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."

Kauzlarich recommends that merchants instead consider a merchant services provider who offers steady, low rates and offers a genuine interchange pass-through program. "Only those merchants on a 'true' Interchange Pass-Through pricing program will receive the full savings benefit on their credit card machine," wrote Kauzlarich. "So make sure you are on an Interchange Pass-Through pricing program that passes all Durbin Amendment savings through to you."

There are also other hurdles to clear before merchants can benefit from the fee price breaks, say experts. For example, big banks stung by the loss in revenues will look to garner those fees in other ways.

Banks are also more likely to issue more PIN card products instead of signature debit cards and rewards debit cards, which reduces bank risk. But that means merchants will definitely need a PIN pad machine at their disposal to deal with the uptick in demand.

What you can do
All in all, dealing with the Durbin amendment is tricky. If you don't go to your merchant services provider and adjust the terms of your relationship, the financial benefit accrued from the new interchange fee law may well be muted.

But before you proceed on with your interchange fee hunt, here are three things you need to do first:

1. Read as much as you can about the new debit card interchange landscape. Learn how it will impact your business. You can find details of the final interchange rule here. 

2. Focus on what the interchange plus pricing language in the law means. It's potentially a big benefit to merchants. Go to your card processor and insist on interchange plus as part of your service package.

3. If your service provider is still using a legacy system, ask for an explanation of how that works under the Durbin Amendment. Your provider could be lumping higher-fee debit cards with credit cards.

When it comes to getting the most from the new interchange debit card fee rules, information is power. The more you have, the better off you'll be.

See related: After the Durbin amendment: A new era in debit card transactions; Fighting high card processing fees with store debit cards

Published: July 29,2023