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More Durbin Amendment Follow Up [2023 Update]

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The Official Merchant Services Blog continues its in-depth look at an interesting opinion article we found on Practical E-Commerce. We recently did a 2-part series on the differences between Tiered Pricing plans and Interchange Plus pricing plans. And in it we heralded Interchange Plus and explained why Host Merchant Services uses what we feel is the superior pricing plan to benefit its merchants. Phil Hinke’s article went beyond just the pricing plans, however, so we split our analysis up into two separate entries. This one will focus on the Durbin Amendment.

Durbin Amendment Can Bring Added Fees

Hinke’s article goes on to discuss some of the effects of the Durbin Amendment in relation to MSPs and their offerings: “No merchant should make a decision solely based on the savings analysis done by a merchant account provider, even if it is a well-known provider or financial institution. I am seeing biased and flawed savings analyses presented to merchants. The most common flaw is identifying savings that take the merchant’s existing debit and credit card volume, then showing a projected savings based on the entire volume being at the lower Durbin Amendment regulated debit card rates. Make sure all savings analyses show an accurate breakdown of credit and debit card volume for your business. Also, remember that the Durbin-Amendment-regulated rates will probably only affect 60-70 percent of your debit transactions, since it applies only to financial institutions with more than $10 billion in assets. The remaining transactions will still be at the previous unregulated rate.”

Hinke again makes a compelling point. Much of the Durbin Amendment analysis that was presented in the media solely focused on consumers and the banks. Rarely did traditional media sources delve into what would happen with the transaction processing side of things after October 1, 2011. Host Merchant Services addressed this in their Durbin Amendment analysis, however, citing the very issue that MSPs could indeed soak up savings from the Durbin Amendment: “There is also speculation that the merchant won’t see much of the savings in the first place. And this speculation is tied directly to the payment processing industry. The basics of the industry are that merchants do not deal directly with large credit card issuers like Visa and MasterCard. Rather, they deal with acquirers, or middle men, who offer payment processing of credit cards and debit cards to merchants through their acquirer company’s own goods and services. The rampant speculation is that the acquirers will reap the large savings from the Durbin Amendment, since they are in line between the credit company and the merchant, and will shift high fees right back onto the merchant. This wiggle room in the middle, if it takes place as predicted, could see a large short term spike in profits for acquirers.”

Knowing is More Than Half the Battle

Hinke also suggests Merchants really get involved in a discussion with an MSP that gives them an analysis and an offer: “However, I believe merchants should ask these companies tough questions before using them. This includes asking how the third party makes money, and who is paying that company.”

Host Merchant Services is proactive in this area. The company provides articles on its web site covering specific and helpful topics. Host Merchant Services provides The Official Merchant Services Blog to keep its customers up to date on the latest news affecting their business and the processing industry. The company guarantees savings, transparency on statements, and 24x7x365 customer support. The goal is to keep its merchants happy and informed. Interchange Plus in the hands of Host Merchant Services is the perfect tool. Because it’s goals take advantage of the strengths of the pricing plan.

In Conclusion

Mr. Hinke’s article is insightful. It demonstrates some of the problems that can still occur with an Interchange Plus pricing plan and strives to get merchants to be vigilant with their statements and processing fees that are on their statements.

Interchange Plus Follow-Up

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The Official Merchant Services Blog looks at an interesting opinion article we found on Practical E-Commerce. We recently did a 2-part series on the differences between Tiered Pricing plans and Interchange Plus pricing plans. And in it we heralded Interchange Plus and explained why Host Merchant Services uses what we feel is the superior pricing plan to benefit its merchants.

The article begins by introducing the author: “Contributor Phil Hinke is a credit-card veteran who now consults with merchants on lowering their processing costs. Hinke believes the credit card processing industry is often unfair to merchants. He believes the Durbin Amendment — which lowers debit card interchange rates — is fostering deceptive pricing practices by some merchant account providers. He explains his views in the article below.”

This bring together the topic of Merchant Account pricing plans with the Durbin Amendment, something The Official Merchant Services Blog has also been covering in detail. Deceptive pricing practices are something Host Merchant Services strives to overcome in the industry. And one of the key factors the company chose Interchange Plus pricing is because of the transparency which lets merchants see fees on their statements much better than tiered pricing plans.

But Mr. Hinke’s article is an eye-opener because it details ways in which even Interchange Plus pricing can be manipulated to hide fees from merchants: “I am a strong proponent of interchange-plus pricing and, to date, I have never recommend tiered pricing for merchants. (I addressed the differences between interchange-plus and tiered pricing at“Notable Views: Credit Card Veteran on ‘Onerous’ Processing Rates,” a previous article.) However, merchants on interchange-plus pricing can still be grossly overpaying for their card processing. In fact, of the hundreds of merchant statements I have analyzed, the majority of merchants that were overpaying were already on interchange plus, which gives merchants only the potential for fair prices — nothing more.

I recently showed a merchant who was already on interchange plus pricing that he could save money by changing to a provider with a higher processing rate. How could that be? The processing rate is just one of many costs the merchant pays. In this case, the merchant account provider had given the merchant what seemed to be an enticing rate. However, it also hit the merchant with copious monthly and annual fees. Those fees more than offset the rate savings.”

This is a compelling point. And one of the areas where Host Merchant Services is able to stay competitive. Interchange Plus is a tool that a Merchant Services Provider can use to give its customers fair prices. But it’s only a tool. MSPs can still do their best to mark up fees and manipulate the process for profit maximization. As Mr. Hinke points out Interchange Plus only gives merchants potential for fair pricing. It still needs a motivated, hungry MSP in place looking to save merchants money by taking advantage of the tool.

An MSP like Host Merchant Services utilizes that tool along with its overall philosophy to guarantee its merchants savings, transparency and customer service. In that way, Interchange Plus works for the merchant, because it is part of the overall plan to have merchants stick with the company because they are getting value for the services. As Chief Operations Officer Dan Honick often says to clients, “You stay with us because you’re happy.”

Durbin Amendment Almost Here

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The Official Merchant Services Blog once again takes up the task of analyzing the media reports revolving around the Durbin Amendment and the changes it will bring to how banks do business with their customers because of its cap on debit card swipe fees. We continue to use Host Merchant Services‘ own analysis as the foundation of the comparisons we make regarding other media sources and their take on the legislation and its impact.

Durbin on Durbin

The first article comes from a Chicago-based radio station WLS 890 AM. It’s an interesting read because it quotes the legislation’s namesake, Senator Dick Durbin from Illinois. It’s one of the few articles that includes Durbin’s perspective on the legislation as we get closer to the October 1 date of when the law takes effect. The article begins with a brief explanation of what Durbin sought to do with the legislation:

“Sen. Dick Durbin told reporters Tuesday afternoon that the debit card fees retailers have to pay will go down Saturday thanks to the Durbin Amendment.”

It then offers a lively retort from J.P. Morgan Chase executive Jamie Dimon: “The big boss at J.P. Morgan Chase, Jamie Dimon, calls this ‘price fixing at its worst’ that will surely cause banks to raise fees on customers with deposit accounts. “

While many of the articles on this amendment have been dancing around the confrontation between consumers and banks over the Durbin Amendment this article dives right into the rhetoric, giving it a much more active tone for the reader and an insight into the debate that framed and spawned the legislation. It helps that the article ties this confrontational perspective into the legislation’s author and Durbin’s motivation for working on the amendment. Citing a letter that Durbin wrote to Dimon back in April, the article states: “Durbin said to Dimon, ‘Your industry is used to getting its way with many members of Congress and with your regulators. The American people deserve to know the real story about the interchange fee system and the ways that banks in general — and Chase in particular — have abused that system.’ “

But the basic conclusion is pretty much the same as the other articles focusing on the amendment and what changes it will bring on October 1. The conclusion is that banks will react by creating more fees for their customers and just recouping the losses from the swipe fee cap in other areas not covered by the legislation. Durbin is quoted in the article, calling that tactic “indefensible” but conceding it is the likely outcome of the amendment. The article sums it up: “So what the government giveth, the banks may take away.”

The Cost of Doing Business

The next article we look at is an Associated Press piece located on Bloomberg’s website. It’s a report that reveals how much money American Express spent in the second quarter of this year to lobby Congress and fight against the implementation of the Durbin Amendment.

“American Express Co. spent $610,000 in the second quarter to lobby the federal government on rules involving the fees charged to merchants for processing payments and other issues, according to a disclosure report.”

The article notes that the company spent the same amount of money in the previous quarter of 2011, but that they spent 3% more money in the second quarter of 2010 comparatively. The article also notes that Amex doesn’t offer debit card services, but does offer interchange services on credit card payments, suggesting that was the reason it spent money to lobby Congress on the topic. The money wasn’t solely spent on lobbying against the Durbin Amendment. And the article notes that: “Amex representatives also lobbied the federal government on legislation involving online tracking of consumer behavior and the protection of personal information, cyber security, financial regulatory reform, consumer financial protection and issues related to reloadable prepaid cards, patent reform, tax reform and reform of the U.S. Postal Service.”

So what we see in today’s Countdown to Durbin is a look at how heated the debate still is between the legislation’s namesake and the big banks that are targeted by the reform. The intensity of this debate was such that American Express even spent more than $600,000 in a single quarter to lobby against it in 2011.

durbin preparations continue

Durbin Preparations Continue [2023 Update]

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The Official Merchant Services Blog is staying on top of the Durbin Amendment. Today’s article that we analyze comes from the New York Daily News.
The first thing that stands out about this article compared to many of the others on the impending Durbin date of October 1, is the casual, but easy to relate to lead of the story. The New York daily news appeals to its readers with some examples of other common cost increases that everyone who might pick up this story can relate to: An increase in toll costs and an increase in Netflix subscription costs. With those two things firmly entrenched in the reader’s mind, the article then shifts into discussion about the Durbin Amendment. And like Host Merchant Services said back when it analyzed the legislation, the New York Daily news makes the point that consumers are going to feel the heat from the cap on swipe fees.

Key Summation of the Durbin Amendment

key summation of the Durbin Amendment

The key summation of the Durbin Amendment from this article is short and to the point:

“The new legislation, called the Durbin Amendment, roughly cut the amount banks can charge retailers who swipe your debit card – known as an interchange fee – in half.

That’s great for retailers, who were paying an average of 44 cents per transaction, but bad for banks. In some ways, at least, it’s bad for customers, too.”

The Daily News article points out two banks are shifting the burden directly to its customers: Wells Fargo, which is testing a $3 monthly fee for debit card users in 5 states, and SunTrust which has already announced it is launching a new account type, Everyday Checking, that charges $5 a month for debit card use. These examples show that the banks are simply making a lateral move with the fees, so that they are no longer found under the scope of Durbin, but are still being extracted from consumers.

These examples follow suit with the current media landscape that is finding more and more banks ready to unveil new programs and changes to their services all related to the Durbin Amendment. But the article does go on to explain that some of these changes are still in the testing phase, and a detail oriented customer may be able to find ways to avoid these debit fees by taking advantage of other services and perks their bank provides.

The next big thing the article mentions is banks scaling back on debit card rewards programs. Host Merchant Services found this to be a likely reaction to Durbin Amendment changes as well when it analyzed the legislation.

The article concludes, however, with some information that recent articles about the legislation have been less inclined to delve into: Credit cards. The legislation primarily attacks debit card swipe fees, and this opens up a lot of potential for the big credit card companies to vie for consumers to switch from debit to credit. And the article makes a final point about how smaller banks can end up exempt from the changes. So it leaves the reader with a lot of different options on how to deal with any challenges they may face with their purchasing choices on October 1.