There are 3 changes coming in credit and debit card processing that you should know about. Why? Because they deal with requirements by VISA and MasterCard that used to drive business owners crazy – but not any more!
The new provisions in the Dodd-Frank Consumer Protection Act should please both consumers AND business owners! This is due to the Durbin Amendment, which creates new flexibility in how a merchant accepts debit and credit cards, as well as new control over the rates they pay. Here is what has changed…
New Regulators
Much to the anger and frustration of business owners over the years, the interchange rates and fees set by VISA and MC were self-regulated. In other words, VISA and MC set their own rates and fees. Business associations such as the National Retail Federation, et al, have consistently cried “foul”, saying that allowing control to be left in the hands of the 2 major card associations represented a virtual monopoly.
Well not anymore!
Since signing the Dodd-Frank CP Act, (which contains Sen. Dick Durbin’s Amendment) into law on July 21st this year, the Federal Reserve Board will begin regulating fees to process debit cards. If the Fed does what many in the banking industry fears they’ll do, we may see a dramatic lowering in the rates merchants pay to process debit cards.
No one really knows, of course, but Bank of America estimates interchange fees may drop anywhere from 60-80%! If that happens, expect to see retailers pass on at least part of that to the consumer – making business owners and consumers BOTH happy.
The Board the Federal Reserve creates has up to 9 months from the bill’s passing to decide what the new rates will be.
More Fair Policies
Another card association requirement which drove merchants crazy was the fees they had to pay vs. the “minimum dollar value” of card transactions.
Until now, merchants have been required to accept payment cards for any purchase, regardless of the amount of sale, as long as the card presented to them had a VISA or MC logo on it. This meant that many times a merchant would only break even – and sometimes even LOSE money – when the fees they were being charged for a small ticket item were higher than the margin of mark-up on the item purchased. This was especially a problem for fast food restaurant and convenience store owners, who often processed transactions of less than $10 per average ticket, yet paid fees amounting to more than what their earnings were from that same ticket.
Can you see how that was unfair? To be required to take a loss, while the bank that issued the card could earn money off of the same transaction?
The new law allows a merchant to set a minimum dollar value of $10 on each purchase made with a credit or debit card, thereby insuring they’re not going to lose money on the transaction. (NOTE: The minimum cannot exceed $10)
Alternative Payments
Lastly, here’s one more thing merchants are going to like…
A large number of merchants I’ve met with have wanted for years to be able to offer their customers discounts if they would use an alternative form of payment, e.g. a check or cash.
Now, they can.
Also, they can offer a variety of discounts for the same purchase, of the same item. For example, one price if paying by check, another for cash, another for debit, and yet another for credit – if they so desire.
One caveat: While it’s nice to now be able to price an item according to it’s best value for the merchant, it’s also wise not to have so many choices it confuses or angers their customers!
In summary, with a new board regulating rates and fees, new laws favoring merchants with minimum costs for card usage, and flexibility in pricing based on payment method, it’s easy to see some new advantages for both the merchant and consumer. Which, of course, is good for everyone.