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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.”