Debit Card Fees and The Durbin Amendment

This week ushers in some very important changes for businesses that accept electronic payments, as new rules from the Durbin Amendment take effect. Beginning October 1, 2011, the Federal Reserve has set new limits on interchange fees for debit card transactions.

What you need to know as a business owner:

First, there is always a middle-man. You process through a processing company. Those folks take a little cut each time you process a card, and then they send off the transaction to an interchange where it routers to your customer's account, pulls money, and then pushes it back through your processing company and into your bank account. Scratching your head yet? What you should know about this is that the interchange rate is figured based on card type and risk type (keyed transactions are more expensive than swiped ones because they're riskier). No matter who you process with, those interchange fees are the same for any given card type. In short, all processors pays an interchange fee to issuing banks, and they are all on a level playing field.

So, what are Interchange Fees? Interchange Fees are fixed costs (per swipe transaction fees) and variable costs (percentages) that banks charge processing companies (who then charge you as a business owner) to accept electronic transactions.

Second, what are processing fees? Your processor (see, First Data, Heartland, United Bank Card, Sterling, etc) tacks on a little profit for themselves on top of the interchange rate that the bank charges them. It's how they stay in business, and that's fine as long as that markup isn't outrageous. It's important to know that these processor fees are not being regulated based on the Durbin Amendment - only the fees that processors pay to the issuing banks are being regulated here.

What does this all mean?

If you're processing with an above-board company, you'll see your processing rates for debit cards drop by about 40%. The federal reserve estimates that an average debit transaction is $38. Based on current rates, your interchange fees (not including processor fees) would run you about $0.44 per transaction. As of October 1, 2011, that amount would drop to about $0.24 per transaction. Credit card transaction are not changed by the Durbin Amendment.

In short, make sure you are on an interchange pricing plan with your merchant processor. If not, it's most likely time to find a new processor or renegotiate your rates. Questions? Our office can help decipher your merchant statement - just contact us!

If you're interested in seeing the actual language from the federal reserve, here is the direct link:

http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm