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May 2011

Speak Out :: About Those Debit Card Fees...

David Frick of Transaction Resources comments on the Durbin Amendment.
Written by David Frick, David Eldredge | 0 comment
Having been in and around the credit card industry for 30 years, and having received a phone call from a ski area customer that had just read your article, "Keeping Your Money," (SAM, March 2011) I would like to comment on the Durbin Amendment.

Certainly, the Durbin Amendment is the biggest topic of interest in the credit industry today, and it was the hottest topic and seminar at our most recent payment card industry trade show, held by the Electronic Transactions Association.

There are two things pertaining to the Durbin Amendment that I want to point out. First, the Durbin Amendment will require a reduction of debit card interchange fees to no more than $.12 on all swiped, authorized and settled debit cards (if issued by a bank with more than $10 billion in assets), whether they are PIN-based or signature (accepted like a credit card). Second, it's possible that implementation will be delayed for a year or so while the details are sorted out.

The bottom line? It looks as though the Durbin Amendment will give you a cost reduction whether you use PIN pads or not. There's no need to buy them right away. Nobody really knows what the final legislation will be until the dust settles.

So, our advice is, "sit back and relax." Right now the Durbin Amendment looks like a win-win situation and you won't have to do anything to benefit from it.

David Eldredge, author of "Keeping Your Money," (SAM, March 2011) replies:
Yes, there are a lot of moving parts regarding the Durbin Amendment. By now, either it has become law or not. I do believe in the law of unintended consequences, and fully expect there to be a domino effect following the announcement on Apr. 21. But exactly what the effects will be is anyone's guess.

I do not know where the Electronic Transactions Association gets its information regarding debit card transaction fees. Senator Durbin's website clearly states that his legislation will only affect PIN-based debit, and that the amendment was not created to regulate interchange fees on credit and non-pin debit transactions.

Focusing on PIN debit fees misses the greater point of the article, which is that "processing fees" are becoming less vital, and "payment acceptance costs" are becoming a more accurate gauge of what it costs to accept payments. Credit card processors tend to focus on "rate," but in today's market, that accounts to maybe 5 percent of the total cost of accepting payments.

That's why the article mentioned a technological advancement (CenPOS), and focused on seldom-talked-about topics that comprise the other 95 percent associated with payment acceptance. Issues like chargebacks, routing rules, signature capture, reporting, downgrade surcharges, etc., are all important parts of processing-and using technology to accomplish those tasks is vital to keeping payment acceptance costs as low as possible.

I don't expect ski areas to go out and purchase PIN pads before the legislation is final. If they wanted to, they would go through their merchant acquirer, who hopefully is knowledgeable and would advise them accordingly.

The bottom line is that it may still make sense for a merchant to enter a customer's PIN number to get the best rate after the Durbin Amendment hopefully passes.