Who Wins and Who Loses With the Durbin Amendment?

Michael Saum
September 13, 2011 — 1,541 views  
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Theoretically, merchants and ultimately consumers, should win with this new legislation, but will they? And, banks and issuers will most definitely be the losers so how will they make adjustments? Here's some ideas.

A little over a month ago, I wrote an article regarding the Durbin Amendment to the Dodd-Frank Act. Most merchants, I've discovered, are mostly unaware of the effect it will have on them. So, the purpose of this article is to try and bring some clarity to this legislation that goes into effect beginning October 1st.

Durbin has impact on debit cards and the cost to process them. It will, therefore, affect issuers, processors, acquires, merchants and in many cases, consumers. Once implemented, debit card interchange fee rates will be capped at $.21 and 5 basis points. This new cap, for those in the know, is significantly lower (40-50% lower) than existing debit interchange rates and will affect approximately 40% of all payments volume. In 2010, it's reported that credit card volume grew by 4% while debit card transactions grew by a robust 14%.

As you might imagine this recent surge in debit card usage and the resulting increase in revenues earned by banks and issuers, has benefited their bottom-line greatly. So, what will this loss, or reduction of revenues mean to them? There is a pressing need for them to reduce costs or increase revenues in other ways. With the state of our current, and most recent past, economic situation, banks traditional transaction services that generated revenues, has also been greatly impacted. So, what are some of the options they may implement? Well, they could start to charge fo basic debit card trasactions to compensate for the potential loss of revenue. However, such fees could result in consumers opting out of debit card usage altogether. Issuers could start charging a monthly fee, annual fee, per-transaction fee or a combination of these.

So far, I've addressed the impact Durbin has primarily on the banks and other issuers....loss revenues. But, how will it affect retailers and merchants in general. Theoretically, this new legislation should result in a savings, however, and there's always a "however"...will you get your share? First and foremost, merchants need to thoroughly understand how and for what, they are currently being charged for all types of transactions. Once gaining that knowledge, they will be more able to steer their customers toward the most cost-effective payment channel, which could possibly involve offering some form of incentives or rewards. If additional fees are imposed on consumers for using debit cards, many will start favoring other payment options. One of those may be the usage of prepaid cards which is the topic of a whole other article that is forth-coming.

The climate and structure in the payments industry is taking one of the biggest changes we've ever witnessed. Now, more than ever, merchants, especially NEED to become better educated regarding this cost center in their business. With the Durbin Amendment in place, processors can either pass on all/some/none of the savings to their merchants (unless, of course, you are priced on the most transparent form of pricing which will guarantee your savings). How do you think you'll be impacted? Do you know for sure?


My name is Michael Saum and I'm a 63 year old semi-retired, merchant services rep. In my current capacity, I write informative, articles relative to the acceptance of credit/debit cards in your business I also offer my comprehensive, FREE, email course, on the subject of credit card processing with NO SOLICITATION or HYPE. You can enroll by visiting the following website:


Expand your knowledge regarding this ever-increasing cost center in your business and end up improving your bottom-line. It will be one of the wisest investments of time you will make in your business that will pay rewards for years to come.


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Michael Saum