The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is set to cap debit interchange fees on October 1, 2011 top to lower debit processing fees for firms.
However, a great number of merchants will not see the savings that result from the capped debit charges. Rather, their credit card processor will rake in the dough.
Every single blogger and journalist that knows just enough about the Durbin Amendment to be harmful is preaching to their readers about the windfall of savings coming October 1st as a result of the Durbin Amendment.
Sadly, these authors are going to have a lot of explaining to do on October 2nd when their followers don't see a decrease in their debit card processing fees.
This unintended outcome is the result of a significant oversight by the Fed when drafting the Durbin Amendment. You see, interchange is the fee that banks charge organizations when they accept a debit card issued by the bank.
So, the Feds believed capping the debit card interchange fee that banks are able to charge would lead to lower processing costs for merchants. It sounds like a logical conclusion, but the Feds failed to think of who's actually paying interchange charges.
The majority of corporations in the United States do not pay interchange charges directly to the banks that problem credit and debit cards. Rather, enterprises pay a fee to credit card processors and processors essentially pay interchange to the banks (via acquiring banks).
So, the debit card fee cap imposed by Durbin will truly benefit credit card processors even more than organization because processors are the ones that actually spend issuing banks. Ultimately, processors will pay a lower debit fee to banks, but they are still free of charge to continue charging companies at pre-Durbin rates and charges.
The pricing model that makes it possible for processors to game the program is known as tiered or bundled pricing. Tiered pricing makes it possible for processors to sit between corporations and interchange fees, and it enables the processor to manipulate interchange rates just before they reach merchants.
Businesses that pay processing fees by way of a tiered or bundled pricing model will most likely not see a lower in fees as a result of Durbin.
The only corporations that will see a expense lower as a result of the Durbin Amendment are those that spend credit card processing fees under an interchange pass through pricing model. As opposed to bundled pricing, pass via functions in such a way that processors are not able to manipulate interchange charges. As the name implies, under a pass by means of pricing model interchange charges are passed directly to businesses and the processors charges are kept separate.
If your enterprises does not presently spend credit card processing charges through an interchange pass by means of pricing model, it is time to obtain a new processor. Not only will your company understand the savings as a result of the Durbin Amendment, processing charges on the entire will lower dramatically.
