Credit score Card Processing: Durbin Savings Wont Reach All Businesses
The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is set to cap debit interchange fees on October 1, 2011 leading to lower debit processing costs for businesses.
However, many merchants won't see the savings that result from the capped debit charges. Instead, their credit card processor will rake in the dough.
Every blogger and journalist that knows just enough about the Durbin Amendment to be dangerous is preaching to their readers about the windfall of savings coming October 1st as a result of the Durbin Amendment.
Unfortunately, these authors are going to have a lot of explaining to do on October 2nd when their followers don't see a decrease in their debit card processing fees.
This unintended outcome is the result of a major oversight by the Fed when drafting the Durbin Amendment. you see, interchange is the fee that banks charge businesses when they accept a debit card issued by the bank.
So, the Feds thought capping the debit card interchange fee that banks are able to charge would lead to lower processing costs for merchants. it sounds like a logical conclusion, but the Feds failed to consider who's actually paying interchange fees.
The majority of businesses in the United States don't pay interchange fees directly to the banks that issue credit and debit cards. Instead, businesses pay a fee to credit card processors and processors essentially pay interchange to the banks (via acquiring banks).
So, the debit card fee cap imposed by Durbin will actually benefit credit card processors more than business since processors are the ones that actually pay issuing banks. Ultimately, processors will pay a lower debit fee to banks, but they are still free to continue charging businesses at pre-Durbin rates and fees.
The pricing model that allows processors to game the system is called tiered or bundled pricing. Tiered pricing allows processors to sit between businesses and interchange fees, and it allows the processor to manipulate interchange rates before they reach merchants.
Businesses that pay processing fees via a tiered or bundled pricing model will likely not see a decrease in fees as a result of Durbin.
The only businesses that will see a cost decrease as a result of the Durbin Amendment are those that pay credit card processing fees under an interchange pass through pricing model. unlike bundled pricing, pass through functions in such a way that processors are not able to manipulate interchange charges. as the name implies, under a pass through pricing model interchange fees are passed directly to businesses and the processors charges are kept separate.
If your businesses doesn't currently pay credit card processing fees via an interchange pass through pricing model, it's time to find a new processor. Not only will your business realize the savings as a result of the Durbin Amendment, processing costs on the whole will decrease dramatically.
Credit Card Processing Durbin Savings Won't Reach All Businesses
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