By Michael O'Hare, President, BlindBid, a small business cost reduction company
Small businesses received the biggest reduction in their credit card processing charges in the history of the electronic payment industry. Most small businesses will not realize these savings unless they take action.
As part of the Dodd - Frank Wall Street Reform and Consumer Protection Act of 2010 passed by Congress in 2010, the Durbin Amendment was written to give the Federal Government the power to set interchange rates for debit card usage. Essentially, this amendment significantly lowered the rates beginning October 1, 2011.
In the past, debit card processing rates, or debit interchange rates, were set by Visa/MasterCard at a rate of 0.95% + $0.20 for Visa and 1.05% + $0.15 for MasterCard. Under the Durbin Amendment, these rates were reduced to 05% + $0.22 each company.
Merchants that process debit cards (signature debit or pin debit) have begun to see huge savings on their merchant account processing statements. Because debit transactions, pin and signature, comprise nearly 50% - 70% off all card transactions, merchants have the ability to see decreases of up to 50% in their credit card processing charges representing real savings.
Not all merchants have card processing plans that allow for the Durbin Amendment reduction. For those who do not have these plans and still accept a high percentage of debit cards, their debit interchange savings will be going to their processors rather than themselves.
This is especially true for merchants who are on three-tier and enhanced bill back pricing. For this group, the processor is not compelled by law to reduce the rates and only reduces your interchange rate and not the Visa/MasterCard Assessment and the processor's percentage. In essence, if a merchant is paying 1.64% + $0.20 per debit transaction, the difference of 0.95% to 0.05% goes to the processor, not to the merchant.
There is a way to get around this dilemma in order to ensure that your company realizes the debit interchange savings. By switching to interchange plus pricing, the merchant is guaranteed to receive the reduction. Under interchange plus pricing, the processor is compelled to set the interchange rate at the current bank rate and then add his percentage on top.
For example, using the 1.64% rate previously stated, the processor bundled the interchange rate and its percentage together to create fixed pricing. As long as the interchange rate stays below 1.64%, the processor is going to charge that rate.
Below are examples of how the Durbin Amendment affects credit card processing charges.
Reduction in Interchange for a $100 Transaction
Current Visa Debit Interchange Rate: $100 x 0.95% + $0.20 = $1.15
Durbin Amendment Interchange Rate: $100 x 0.05% + $0.22 = $0.27
The next example is one to show how debit reduction can save you 50% or more on your debit transactions. Joe's Auto Repair has a $100 dollar average ticket. Joe pays 1.64% + 0.20 on swiped debit transactions. After he heard about the Durbin Amendment, Joe decided to switch processors to receive Interchange Plus Pricing. Here is how he benefitted from it.
Current Interchange Rate: $100 x 1.64% + 0.20 = $1.84
IC Plus Savings on Debit Transactions: $100 x.05% + $0.22 = $0.27
Add to that the Visa/MasterCard Assessment $100 x.11% + $0.02 = $0.13
Processor fee of 0.50%/per purchase $100 x 0.50% = $0.50
Adding the charges together $0.27 + $0.13 + $0.50 = $0.90
With the final amount equaling $0.90, there is a 51% savings over the current debt transaction rate.
Take Action Now
To take advantage of the Durbin Amendment, you may have to switch processors. The easiest way to find a reputable processor is to go to Blindbid.com and fill out the lead form. The service is free and you can receive multiple quotes from pre screened vendors.