The biggest trend continues to be the Durbin Amendment. 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.
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