Throughout many industries, companies are feeling the effects of 2010’s Durbin Amendment. This much-vaunted amendment to Dodd-Frank was intended to protect consumers and businesses from unreasonably large interchange transaction fees. As finally implemented in 2011, the amendment protects one large class of businesses while doing measurable harm to firms specializing in smaller transactions. Though the Durbin Amendment has certainly produced positive benefits for a huge cross-section of America, the overall effects of Dodd-Frank show the limitations of using legislation to alter complex economic systems.
Even before Durbin Amendment enactment, companies often made little on very small transactions. Fortunately, new Mastercard and Visa regulations give companies greater flexibility in setting minimum transaction limits. Of course, adopting these limits can have adverse effects on public relations. Businesspeople must tread carefully when implementing such conspicuous limitations on customer choice.
For some types of business, minimum credit card transaction rules have long been standard practice. For example, independent coffee shops garner much of their revenue from two to five-dollar transactions. When visiting these establishments, consumers expect transaction limits and generally take them in stride. When consumers encounter unexpected new transaction limits, this can cause consternation and distress. At the same time, financial considerations may force companies to move forward with transaction limits and learn to deal with any consequences. During these critical transition periods, managers should do everything they can emphasize appreciation and respect for customers. Employees need adequate training and oversight to politely deal with questions about new transaction limits. Companies can also ease these transitions by offering samples, gifts and other thoughtful incentives. One doesn’t have to spend much to make customers feel appreciated and valued.
While most companies can adopt transaction limits without alienating customers, some commentators question if it is fair to saddle merchants with all responsibility for limiting credit transactions. Banks use reward point systems to aggressively push consumers into making ever more credit purchases. According to lead economist Fumiko Hayasha of the Federal Reserve Bank of Kansas City, point system users drive up transaction costs throughout the nation. Additionally, credit consumer advocate Joan Ulzheimer argues that reward point benefits are generally smaller than the costs of overusing credit.
Here at Host Merchant Services, we understand that the costs of doing business are shared by consumers and businesses. As part of our commitment to promote healthy merchant relationships, we help our customers create solutions to problems that complicate modern payments and commerce.