How will the Durbin Amendment Effect My Business?

Small businesses will receive the biggest reduction in their credit card processing charges in the history of the electronic payment industry, but only if they are set up correctly. The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 included an amendment, which will greatly impact your credit card processing or more specifically your debit card processing charges. This Durbin Act will affect both signature and pin based debt interchange rates by drastically lowering them on October 1st, 2011. Normally, the debit card processing rates (debit interchange rates) were set by Visa/Mastercard. The current debit card interchange rates are 0.95% + $0.20 for Visa and 1.05% + $0.15 for Mastercard. The Federal Government led by Senator Durbin has intervened and under the Dodd Frank Wall Street Reform and Consumer Protection Act reduced the debit interchange rates to 0.05% + $0.22. Merchants that process debit cards whether signature debit or pin debit will see huge savings on their merchant account processing statements. Debit, both pin and signature, comprise nearly 50% - 70% off all card transactions. Merchants could see their credit card processing charges cut in half. That is real savings. Unfortunately, many merchants, who do accept a high percentage of debit cards, may not see any savings, because their current credit card processing plan does not allow for the Durbin Amendment reduction. Instead their debit interchange savings will be going to their processors. This is especially true for merchants who are on 3 tier and enhanced billback pricing. The reason is that the processor is not compelled by law to reduce the rates. They are only reducing one component of your rate called, interchange, not the other two components, Visa/Mastercard Assessment and the processors percentage. So if you are paying 1.64% + $0.20 per debit transaction, the difference of 0.95% to 0.05% will go to the processor and not to the you. There is away around this dilemma and to ensure that your company and not the processor realize the debit interchange savings. This requires the merchant to switch to interchange plus pricing. This will guarantee that you will receive the reduction. The reason is that under IC Plus pricing, the processor is compelled to set the interchange rate at the current bank rate and then add his percentage on top. If

the interchange rate is .05%, the processor must use that percentage as his base line and then add on its percentage of say 0.50%. In the 1.64% example above the processor has bundled his interchange and its percentage together. This is fixed pricing. As long as interchange is below 1.64%, the processor is going to charge that rate. Durbin Amendment Examples: Reduction in Interchange $100 Avg. Transaction Current Visa Debit interchange $100 x 0.95% + $0.20 = $1.15 Durbin Amendment Interchange $100 x .05% + $0.22 = $0.27 An example of how debit reduction will save you 50% or more on your debit transactions. Joes Auto Repair has a $100 dollar average ticket. Joe pays 1.64% + 0.20 on swiped debit transactions. $100 x 1.64% + 0.20 = $1.84 Joe pays on average $1.84 per transaction. Joe heard about the Durbin Amendment and has decided to switch processors to receive Interchange Plus Pricing. IC Plus Savings on Debit Transactions: $100 x .05% + $0.22 = $0.27 Then we add in Visa/Mastercard Assessment (0.11% + $0.02) $100 x .11% + $0.02 = $0.13 Finally, the processor fee of 0.50%: $100 x 0.50% = $0.50 Add the charges all together Total: $0.27 + $0.13 + $0.50 = $0.90 Over 50% savings over the current debt transaction rate.