The Countdown Begins

September 21, 2011

Host Merchant Services has been ahead of the curve on the Durbin Amendment, and its impact on the merchant services industry. The amendment takes effect on October 1, 2011. Between now and then The Official Merchant Services Blog is going to link to and analyze a new article from an outside source that discusses the changes brought on by the Durbin Amendment as well as how those changes affect Merchant Services Providers and their customers.

The first article we look at was published by The Green Bay Press Gazette. You’ll find that quite a few of the articles delving into these changes are predicting that consumers will not benefit from the legislation, despite the fact that consumers were specifically cited as the catalyst for this reform. And that’s also what Host Merchant Services predicted with its Durbin Amendment Analysis.

As the Gazette article states:

“Consumers, who are supposed to be protected by the new cap, might not be happy either if banks impose other fees to make up for the lost income.”

The Gazette provides some compelling statistics as the reason for the consumer consternation over the upcoming changes. Specifically noting that initially the Durbin Amendment was supposed to cap swipe fees (or as the article states, credit card interchange fees) at 12 cents per transaction. But Congress later relaxed that strict cap to a 21 cent cap, which can go as high as 24 cents for some merchant services providers and banks that meet specific extra requirements. The article quotes David Ring, a spokesman for Kwik Trip Inc., which operates convenience stores in Iowa, Minnesota and Wisconsin. Ring tells the Gazette that a federal reserve study earlier in the process of this legislation’s debate suggested that the cost of a debit card transaction for the banks was 4 cents. And the article suggests that the mark-up from 4 cents to 12 cents was expansive enough, but now the mark-up to a maximum of 24 cents is going to be such that the consumers aren’t really being helped by the legislation.

The Gazette then provides a counter point from Val Glytas, director of retail payments for Associated Bank. Glytas tells the Gazette that the previous, 12 cent rate would have resulted in banks providing the service at a loss.

It’s this gap that has been the basis of the entire Durbin Amendment debate this year. Banks are preparing to deal with what they perceive as a potentially huge loss in their predicted profits by finding ways to move those fees into other areas of the payment processing industry. The most often predicted reaction to Durbin taking effect is that many banks will stop offering services like free checking accounts. And as a reaction to that, many are reporting that consumers will end up shouldering the burden of this major reform designed to help consumers.

Host Merchant Services reported much the same thing when we published our thorough analysis of the Durbin Amendment here.

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