Posts Tagged ‘interchange fees’

VMS-Washington – Retailers Pay Higher Fees for PIN Debit Transactions

The interchange fees charged to merchants accepting PIN-based debit transactions are now higher, on average, than before the Durbin Amendment was enacted, according to a recent Federal Reserve report. That is not exactly an unexpected development and is one that we predicted before the interchange limit was enforced, but for a first time we now have specific data to examine.
Now, it should be said that the Fed actually knew that the interchange for this type of transactions would increase after the reform took place. After all, the Fed, which the Durbin Amendment charged with determining the precise make up of the new interchange rate, had previously issued a highly-quoted report, in which the average pre-Durbin PIN debit interchange was calculated to have been lower than the proposed one. Let’s take a look at the new data and see what we can make of them.

Merchants Pay More for Accepting PIN Debit

Here is what the Fed is telling us about how the data for the fourth quarter of 2011, which began on the day the interchange reform was enacted, compare to the data for 2009:

The magnitude of the change in interchange fees from 2009 to late 2011 differs materially for signature debit and PIN debit transactions.4 The average interchange fee per signature debit transaction declined substantially (57 percent) for non-exempt issuers and more modestly (8 percent) for exempt issuers. The signature debit interchange fee as a percentage of the average transaction value declined 58 percent for non-exempt issuers and 4 percent for exempt issuers. In contrast, the average interchange fee per PIN debit transaction declined slightly (less than 1 percent) for non-exempt issuers but rose significantly (32 percent) for exempt issuers. The PIN debit interchange fee as a percentage of the average transaction value declined 5 percent for non-exempt issuers and increased 23 percent for exempt issuers.

So, on average, PIN debit is now more expensive for merchants to accept. However, the higher average is entirely caused by the increase in the fees collected by the exempt issuers (financial institutions with assets of less than $10 billion). Here is a more detailed comparison:
Retailers Pay Higher Fees for PIN Debit Transactions
Source: The Federal Reserve

Of course, the fee hike is not equally spread among all merchant types. The hardest-hit are the ones selling small-ticket items.

The Gap between Signature and PIN Debit Is Closing

The new Fed Data also reveal that the gap in interchange fees charged for signature and PIN debit transactions has largely been bridged (at least among non-exempted issuers). You can see that in the table above and here is more from the Fed:

The large disparity that existed in 2009 between the average signature debit and PIN debit interchange fees has narrowed substantially. In 2009, the interchange fee per signature debit transaction was, on average, about 2.4 times that for a PIN debit transaction (2.6 times if calculated using the interchange fee as a percentage of the average transaction value). In the fourth quarter of 2011, the difference between the average signature debit and average PIN debit interchange fees received by non-exempt issuers had largely disappeared; the average interchange fee per signature debit transaction was only 2 percent higher than that for PIN debit and 13 percent higher if calculated using the interchange fee as a percentage of the average transaction value. The difference between signature debit and PIN debit interchange fees was larger for exempt issuers but still much smaller than in 2009. The average interchange fee per signature debit transaction for exempt issuers in the fourth quarter of 2011 was 66 percent higher than the average interchange fee per PIN debit transaction (and 100 percent higher if calculated using the interchange fee as a percentage of the average transaction value).

It is quite something to see just how much more the non-exempted banks are collecting in debit interchange fees.

The Takeaway

So now we have some concrete data on the Durbin Amendment’s immediate effects on the debit interchange fee averages. These are as expected. Even as the retailers are paying higher fees for accepting PIN debit transactions, their overall interchange burden has decreased rather significantly.
Unfortunately, also as expected are the effects the interchange reform has had on the overall cost of consumer banking. The issuers had to find new revenue sources to make up for the lost interchange revenue and they have. A recent NY Times report, for example, tells us that about a third of all U.S. banks still offer free checking accounts, whereas three years ago almost all of them did. Moreover, we are told, “having stepped gingerly into the waters of monthly fees with relatively modest charges, the biggest banks are beginning to increase their rates.” At the end, the issuers will manage to find ways to recoup their losses and we will all be picking up the tab.

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

VMS-Washington

VMS-Washington – Debit Interchange Limit Will Raise Fees on Small-ticket Sales

The effects of the Federal Reserve’s new interchange limit rules on the cost ofaccepting debit card payments will be much more complex than many observers realize. I wrote last week about the strong probability that one consequence of the new fee structure will be the rising cost of accepting PIN-based debit. The same fate will befall merchants accepting small-ticket transactions and this will surely not go unnoticed. One consequence you can be certain of is that issuers will do their best to steer consumers into using the “right” card at the “right” place. Let’s take a look at the dynamics.

The Current State of Debit

The Federal Reserve gives us detailed data on debit and credit card use by card type and amount. Here is the breakdown:

<$5

$5-14.99

$15-24.99

$25+

Number (billion)

% of Total

Number (billion)

% of Total

Number (billion)

% of Total

Number (billion)

% of Total

General Purpose Credit Card

2.1

29%

3.7

25%

2.9

30%

11.2

41%

Signature Debit

3.6

50%

7.3

49%

4.0

42%

8.4

31%

PIN Debit

1.3

17%

3.5

23%

2.6

26%

7.2

26%

Open Loop Prepaid

0.2

3%

0.4

3%

0.2

2%

0.4

2%

Total

7.2

100%

14.9

100%

9.7

100%

27.2

100%

The report notes that:

General purpose credit cards and, particularly, signature debit use were the preferred methods for transactions below $5. Their high share of these low value transactions may indicate the success of card network rules (and promotional campaigns) to allow merchants and cardholders to forego a signature authorization for low value transactions.

Once the Fed’s interchange fee cap takes effect later this year, the card networks will have a much bigger incentive to increase the share of small-ticket transactions paid with a debit card. Here is why.

Why the Interchange Fee Structure Matters

The new rule states that issuers can charge no more than $0.21 per transaction plus 0.05% of the sale’s amount and can charge an additional $0.01 per transaction for fraud prevention measures they have implemented.
In order to make sense of what the new pricing means, we will have to look at how it compares to the (still) current fee structure. As there are many different debit interchange rates, I will only take one that applies to small-ticket Visa debit transactions (and the one that incidentally is of interest here) – the Visa CPS / Small Ticket, Debit – which right now is at 1.55% + $0.04. The table below shows how the two pricing structures compare for amounts of $5, $10, $15, $20 and $25.

InterchangeStructures

Transaction Amount

$5

$10

$15

$20

$25

Old Interchange1.55% + $0.04

$0.1175

$0.195

$0.2725

$0.35

$0.4275

New Interchange0.05% + $0.22

$0.2225

$0.225

$0.2275

$0.23

$0.2325

As you see, under the new structure the interchange fee amount grows very slowly as the sales amount increases, which makes small-ticket transactions much more profitable for issuers on a per-dollar basis. This is due to the much higher weight the per-transaction fee carries in the new interchange arrangement. Crucially, it also means that the new pricing structure will allow issuers to make more money from debit transactions in amounts of up to $11 or so than they currently do. Moreover, as the credit card interchange fees are unaffected by the new rules, bigger-ticket transactions will be much more profitable for issuers if made with a credit card than with a debit card and the difference will only grow with the sales amount.

The Takeaway

So issuers will have a very strong incentive to steer consumers into using debit cards for small-ticket transactions and credit cards – for everything above $11 or so. Exactly how they will do that I don’t know but that they will try I have no doubt.
The other side of the coin is that merchants selling small-ticket items will end up paying higher fees for debit transactions than they currently do.

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

VMS-Washington

Due to the overwhelming calls and emails, VMS-Washington is giving businesses the Spring Deal of the Year.  For a limited time we are offering rock bottom rates for new and existing businesses.  The questions we always ask business owners are:

  • Have you checked out your current or potential merchant service company on theBBB?
  • Does your current provider or potential provider promote your business?
  • Does your current provider or potential provider send referrals your way?
  • Are you getting the best rates in town?
  • Has your current or potential merchant told you about the Durbin Amendment?

Wouldn’t you want an A rated company that and will promote your business though their social media and monthly newsletters.  For more information contact us.

 

Thank you,

VMS-Washington

To read more go to: Business Newsletter May 2012

VMS-Washington May 2012 Business Newsletter

 

Valued Merchant Services offers a free cost analysis to compare your current provider to us. In addition, anyone that sends us business our way will get $50.00 when sign the client signs. We also challenge you to beat our rates, if we can’t we will pay you $250.00 Cash. Has your current processor told you about the Durbin Amendment and how it can save you money on your processing rates and fees?

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

Check out our previous Business Newsletters:

VMS-Washington April 2012 Business Newsletter

VMS-Washington March Newsletter has launched

Check out our February 2012 Newsletter

VMS-Washington – Washington’s Merchant Service Provider

 

 

 

 

 

 

 

 

 

 

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Valued Merchant Services offers a free cost analysis to compare your current provider to us. In addition, anyone that sends us business our way will get $50.00 when sign the client signs. We also challenge you to beat our rates, if we can’t we will pay you $250.00 Cash. Has your current processor told you about the Durbin Amendment and how it can save you money on your processing rates and fees?

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

Read about our past reviews on:

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Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

VMS-Washington – Washington’s Merchant Service Provider

VMS-Washington saved Cake Envy 30.76%. We can beat anyone out there 20-60% off their current provider with average savings of 46.62%. Valued Merchant Services offers a free cost analysis to compare your current provider to us. In addition, anyone that sends us business our way will get $50.00 when sign the client signs. We also challenge you to beat our rates, if we can’t we will give you $250.00 Cash. Has your current processor told you about the Durbin Amendment and how it can save you money on your processing rates and fees?

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

VMS-Washington – Washington’s Merchant Services Provider

 

 

 

 

 

 

 

 

VMS-Washington saved Kevin tarvin 41.10%. We can beat anyone out there 20-60% off their current provider with average savings of 46.85%. Valued Merchant Services offers a free cost analysis to compare your current provider to us. In addition, anyone that sends us business our way will get $50.00 when sign the client signs. We also challenge you to beat our rates, if we can’t we will give you $250.00 Cash. Has your current processor told you about the Durbin Amendment and how it can save you money on your processing rates and fees?

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697

VMS-Washington – What is the Durbin Amendment?

An Overview of the Durbin Amendment

The Durbin Amendment is an addendum to the Dodd-Frank Financial Reform and Consumer Protection Act passed by Congress in 2010. Its namesake, Senator Richard Durbin from Illinois, wrote the plan to expand Federal Reserve powers for setting interchange fees related to debit card transaction processing. In setting the fees, the ultimate goal is spur economic growth with lower fees. Theoretically, retailers could lower prices on consumer goods with the savings on paying high fees to big banks. Lower prices might help to increase consumer spending.

The rules of the Durbin Amendment would cap the interchange fee for debit card transactions. Generally, interchange fees are charged by retailers for each payment accepted with a debit card or credit card.Before the passage of this amendment, the average charge from banks to retailers per transaction was 44 cents. According to the Federal Reserve, banks collected nearly $16 billion annually on these fees to cover fraud prevention and administrative costs. Beginning October 2011 – when the new law goes into effect – the charge will cap at 12 cents.

For retailers, this appears to be an advantage in reducing the amount of bank charges. However, some note that banks will look for alternatives to the revenue loss. Consumers could end up paying the price, literally and figuratively, for the lost revenue.

Additional Provisions in the Durbin Amendment

The Durbin Amendment only affects banks that have less than $10 billion in assets.

Retailers have a choice in selecting a debit network service to process the transactions. Before the new law, retailers could only use the STAR network to process Visa transactions. This was required even if other merchants charged less.

Retailers can give discounts to consumers who pay with a debit card or in cash. Merchant agreements for both Visa and MasterCard currently ban this practice to encourage credit card use.

Problems with the Durbin Amendment

Critics observe the looming problems with the Durbin Amendment, despite its positive provisions.

Because credit cards remain unregulated, banks may choose to increase incentives such as rebates and reward points to entice more spending with credit cards. Consumers may see an advantage to using credit cards versus a debit card to earn the incentives.

VMS-Washington – What is the Durbin Amendment?

Currently there there are restrictions on banks for requiring minimum purchases with debit cards, however fears do exist that with this new legislation that many banks may try and change this. For example, banks could decide to cap debit card purchases at $100, limiting big ticket purchases. Instead, consumers will be forced to use a credit card, prepaid debit card or cash. Purchases are limited for consumers who have bad credit and no credit card.

Smaller banks not directly affected by the Durbin Amendment could suffer revenue losses. Market forces might require small banks to lower rates to remain competitive.

Another problem is banks may transfer the fee to consumers to offset revenue losses. One way this could occur is by changing the terms for free checking accounts. It is possible that banking competition will prevent such changes.

How the Durbin Amendment Impacts Small Businesses

For all of its intentions to improve economic activity, this legislation will impact small businesses in several ways.

Most small businesses pay more to provide discounts than for debit interchange fees. This leaves most at the mercy of a pricing strategy. A tiered system with a merchant service company could cost more.

Small businesses could realize very little in actual savings proposed by the Durbin Amendment. For example, merchant services may have a coded system that equates to other fees such as down-grades and hidden mark-ups.

In essence, small businesses may not see any savings initially because of blended contract agreements. The net effect is that consumers who purchase from these businesses will not see any savings. Small businesses that currently do not accept debit card payments would not see any savings.

If banks raise banking fees, they may include small business checking accounts. Nearly 15 million small businesses have active checking accounts. It is estimated that small businesses could pay as much as $4.8 billion in higher fees during the two years after the Durbin Amendment is implemented.

Many small businesses will need to analyze their debit card transactions. This could help to determine whether savings is possible with their current provider, or if switching to one with lower fees is worthwhile. What works for one small business may not benefit another based on the payment card consumers use.

Conclusion

The Durbin Amendment was passed to increase economic activity among consumers and small businesses. The interchange fees enforced by the Federal Reserve could add more cost than savings to both groups. Market competition may drive banks to shift the lost revenue onto small businesses and consumers.

VMS-Washington – What is the Durbin Amendment?

Larger businesses may benefit more from the reduced interchange fees and have more flexibility to pass those savings onto consumers. However, the law allows small businesses to select its merchant service for transactions. This provides more options in providing a merchant service provider with reasonable fees.

A big key here is that it still falls the each small business to ensure they are saving money with the new legislation. Make sure when you call your current credit card merchant account provider or the one you are thinking about signing with, that they are aware of Durbin and have adjusted their pricing to pass on these savings. If the representative can not quickly speak to how they adjusted their prices, or worse seems confused as to what the Durbin Amendment is, then it likely means you should find a different merchant service provider to work with.

Due to the overwhelming replies and inquiries VMS-Washington wants to help your business out by giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured business loans with an 90% approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

VMS-Washignton
www.vms-washington.com
washignton@valuedmerchants.com
(800) 531.8575 ext. 697