For clarity, let's start with two quick definitions:
Interchange: The rate set by card-issuing banks for all card based transactions. Interchange varies by card type (rewards, debit, credit, corporate, etc), method of transaction (internet, card swiped, key-entered) and industry (retail, restaurant, supermarket, etc). Interchange is essentially the wholesale cost of all card based transactions.
Durbin Amendment: An arm of the Dodd-Frank financial reform act, this amendment reduces the interchange that card-issuing banks can collect on debit card transactions (pin and signature). The new interchange rate is .05% and $0.21 per transaction. Banks with less than 10billion in assets are not affected.
In a nutshell, this means that the wholesale cost of accepting a debit card has been cut by roughly 40%. That's good news for merchants, right? Well, that depends. The most important thing to note is that the Durbin is bank legislation, not processor legislation. Processing companies are in no way required to pass on any of the savings to their clients and many could view the Durbin as a vehicle to immediately boost revenues.
So, how do you know if you will benefit? For the answer to that question you need look no further than your merchant statement. If you are on an Interchange Pass Through program you will immediately benefit when the change takes place. If you are on a Tiered Rate program (your statement may reflect different rates for qualified, mid qualified, non qualified, transactions) it is up to your processor to adjust your rates to reflect the Durbin savings. I should mention that tiered programs are not inherently bad programs to be on, but in this instance it does mean that your processor will need to be proactive if their intention is to pass the savings on to you.
To put this into a dollars-and-cents perspective, lets consider an analysis that I recently prepared for a local retail merchant on a tiered processing program:
Tiered Rate for Debit: 1.88% + $0.20 per transaction
Debit volume: $13,000
Avg ticket: $22 (roughly 590 transactions)
You can see that they were set up to pay roughly $0.61 per debit transaction. With the Durbin, the cost per transaction on the wholesale level will be $0.22, for a difference of $0.39 per transaction. With an average of 590 debit transactions per month, that's $230 per month in savings potential.
At Gravity Payments our mission is to build longstanding relationships with our clients. In light of that objective we are committed to passing on 100% of the Durbin savings to all of our customers. If you would like help evaluating your current program and determining what impact the Durbin could have on your bottom line, please feel free to contact us. We look forward to hearing from you.
