How the Swipe Fee Reform Can Impact a Small Business Merchant

On October 1, 2011, the Durbin Amendment went into effect. The Amendment was to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This debit fee reform will help retailers save on merchant account fees. The interchange fee was reduced to 21 cents plus 0.05 percent of every transaction to circumvent the millions in charges retailers incur from transactions. Consumers are still allowed to offset fraud prevention costs by charging another penny with every debit transaction.

How the Reform Has Affected Merchants

With new reform, merchant services only received concessions on debit cards. Processing credit cards and associated fees will be left up to the discretion of the banks and merchants. Before the reform, merchant account fees were 44 cents per transaction on debit cards. Now, the new average merchant account fee is 23 cents for a debit card purchase. Merchants save at least 20 cents with this new reform. Only Visa and MasterCard Debit cards are eligible for the savings with the new Durbin Amendment. Merchants processing credit cards will continue to be affected by those fees. Only the banks with over $10 million in assets are required to honor the cap on interchange fees. Third party processors can charge merchant account services any fee they prefer. Experts expect merchants to pass along the savings to consumers to generate more sales. One business journal anticipates the savings will be $260 for every $100,000 processed. Payment processing was a lucrative business before the reforms were implemented. Though merchant services are pleased by the reforms, banks fought the Durbin Amendment citing the Amendment placed a strain between merchants and card issuing banks.

The Struggle for Balance Between Banks and Merchants

Banks expected to lose billions in revenue from the reform. Banks attempted to recoup the fees by charging customers monthly fees to use their card, but many debit card customers threatened to close their accounts. The banks processing credit cards may still get fees from those customers, but the banks lost the war against debit card customers. The Senate approved the bill in an overwhelming vote of 64 to 33 in favor of the reform. Since big banks rarely lose, the win surprised merchant services. Consumers are migrating to the use of debit cards despite the incentives credit cards are offering. Fees for processing credit cards may entice more consumers to use debit cards more. Merchant services will certainly encourage the use of debit cards since the fees are lower. Processing credit cards, from the merchant perspective, will be more of a burden. Banks are trying to make up for every penny lost by charging customers fees on their credit cards and debit cards. Payment processing has become more confusing, and more merchants are simply requesting cash to avoid the fees. Larger purchases often require the use of a credit or debit card. Payment processing fees for debit cards are lower, but the reform Amendment has some merchant services confused about how to lower expenses and help consumers protect their purchases. Since banks make $16 billion annually in payment processing fees, merchants felt banks should spread the wealth so savings could be passed on to customers.

Conclusion

After a six month fight with the Senate, the small business merchant won a small battle both for the customer and themselves. Merchants continue to search for ways to improve profitability and consumer savings. Small businesses benefit when merchant account fees are lowered. Consumers have more flexibility and are more likely to shop with the merchant. The Durbin Amendment made merchant services more affordable. Reforms for payment processing, in general, will require some time.