The ramifications of the Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, are already being experienced across the country.
The amendment, having gone into effect October 1, 2011, has caused banks to raise checking and debit account fees, eliminate rewards programs and introduce extensive hidden fees to make up for their losses, all to the ire of their customers.
The original good-hearted intention of the amendment was to regulate (read: lower) interchange fees on debit card swipes in the hopes that this savings would be passed on to customers.
However, it seems that this cost savings experienced by merchants is not yet being shared with their patrons.
As a business owner, what should your strategy be to best capitalize on this new legislation? As of October 1, debit card swipe fees have been capped at $.
21 and 0.
05% of the transaction amount, down from an average $.
44 per transaction.
If you haven't already, you'll soon be noticing lower fees on your processing statement from your merchant account provider.
With respect to that fact, let's examine the impact of the Durbin Amendment's regulations from both the merchant and consumer perspectives and how a change to the consumer market will affect the merchant world in a different way.
PAYMENT METHOD SHIFT Consumers Free checking, debit rewards and debit card programs won't be offered by large banks As a direct result of the debit fee caps, large banks will experience a massive loss of income.
A large bank is defined as a banking entity that has $10 billion+ in assets.
This move will undoubtedly drive customers to smaller, community banks that have been exempted from this new regulation, meaning they get to continue providing debit incentive programs to their customers.
Those customers who don't switch banks will be forced to deal with monthly service fees, a loss of their previous debit rewards programs and new potential hidden banks fees.
Merchants More customers will pay by cash, check or credit card According to the Federal Reserve, debit cards are currently used in 35% of noncash payment transactions.
This number is expected to drop as customers abandon debit cards due to the fees imposed by banks.
Ironically, debit cards were introduced by banks to replace cash and now the tables have turned.
The potential savings you might have encountered from the fee cap will be deemphasized due to the fact that you won't be seeing as many debit cards in circulation.
SETTING MINIMUM PURCHASE AMOUNTS Consumers Must now carry cash and/or checkbook Since merchants can now refuse credit/debit card payments for small ticket purchases (less than $10), consumers must now be prepared to pay by carrying around their more archaic forms of payment.
How many times have you just popped into a convenience store to purchase a bottle of water? Customers must now either meet minimum purchase requirements or be prepared to pay with cash.
Merchants Can now refuse credit card/debit card payments for small ticket items This one's a huge perk.
Prior to the Durbin Amendment, debit card swipe fees averaged $.
44 per transaction, meaning that the bottle of water you sold for $1.
09 only amounted to a profit $.
65, and that's not factoring in rates or additional processor-related fees! You can now decide on a minimum purchase amount ($10) that must be met in order to provide payment by bank card.
You can also incentivize certain payment methods, such as offering a discounted purchase price when paying with cash or check.
COST SAVINGS TO MERCHANTS & CONSUMERS Consumers Ideally, experiencing cost savings at every business The initial intention of the Durbin Amendment's debit fee cap was to extend bank card processing savings to merchants who will then pass along that pricing to their customers.
It's too early in the game to say how effective this bill was in doing so.
Right now, consumers aren't experiencing any savings at all.
They're being affected by bank fees and loss of debit programs and thus far haven't directly benefitted.
The poor suffer As debit cards were intended to replace cash by acting as a convenient checking account payment option, poor folks have now become the butt of this unintentionally bitter joke.
They'll encounter fees on debit cards, fees on previously free checking, become unable to use their debit cards for small ticket purchases, and, at the end of the day, they don't qualify for a regular credit card due to a lack of credit history.
Merchants Opportunity to provide customers with savings, increasing loyalty and showing appreciation As was the original intent of the Durbin Amendment's debit fee cap, you can help your customers reap the benefit of this legislation by lowering your prices.
If you experience $1,000 worth of processing every month and, hypothetically, all these transactions are run through debit networks, you may have paid $440 in fees before Durbin.
Post-Durbin, your fees would be reduced to $210.
Why not use this savings as a marketing advantage? Your customers, the same ones being battered by new bank fees, would be quite appreciative if you did.
Reduced processing costs Since you'll be seeing fewer debit cards and now have the ability to decline small ticket items, you'll resultantly be experiencing lower processing costs.
The more complex explanation of lowered processing costs is contingent upon your merchant account's cost structure (tiered pricing versus cost plus pricing).
Just be sure to meet your monthly minimum, if you have one, to prevent falling below your processing threshold.
Choose your debit networks to find additional cost savings In an effort to stimulate competition (competition = better pricing) amongst debit networks and issuers, merchants can now compare processing costs between all the different debit card networks (STAR, NYCE, PULSE, etc.
) and pick two that offer them the best pricing.
Just like the debit fee cap, use this opportunity to pass savings along to your customers.