Fall - InsideOutdoor Magazine

Back Office
Swipe Fee Savvy
An inside look at interchange reform and how to get the card
processing savings you deserve
by Robert Baldwin
If, like most retailers, you’ve longed
for relief from card processing fees,
your hope is now a reality. The Federal
Reserve Board has reduced the debit
card “swipe fees” that retailers like you
pay every time a consumer uses his/her
debit card at your business.
This could mean significant cost
savings for you, but don’t take that
benefit for granted. Some card
processors are looking to profit at your
expense, and if you don’t know how
to ensure you’re actually getting the
savings you’re rightfully due, you might
miss out on a nice chunk of change.
The costs for card processing
services may be among the three
highest expenses your business incurs,
perhaps outmatched only by labor and
merchandise costs. Total processing
costs can be as high as 4 percent of
the total sale for a single transaction,
of which swipe fees (technically,
interchange fees) comprise a large part.
Swipe fees are a percentage of each
transaction amount imposed by the card
brands (Visa, MasterCard and Discover
Network; American Express follows a
different pricing model) that the issuing
banks collect from retailers every time
a consumer uses his/her credit or debit
card. Currently, interchange fees can
range anywhere between 1.5 to 2.5
percent for each card-based purchase.
In July 2010, President Obama
signed the Dodd-Frank Wall Street
Reform and Consumer Protection
Act, commonly known as the financial
reform bill, that, among various other
provisions, directed the Federal Reserve
Board to ensure that debit-swipe fees
are “reasonable and proportional” to
the cost of processing transactions.
With merchants and banks lobbying
fervently on opposite sides of the table,
this directive sparked one of the most
heated debates on financial reform that
our country has seen in recent history.
After much deliberation and almost
one year later, on June 29, 2011, the
Federal Reserve Board issued its
final ruling to lower the cap on debit
interchange fees to 21 cents per
transaction plus 0.05 percent of the
volume of transaction, effective October
1, 2011. Although this is nearly double
the Fed’s initial proposal of 12 cents,
this is a significant reduction from
the average of 44 cents that retailers
currently pay per debit card purchase.
The rules also state that issuers can
charge an additional one cent if they
comply with certain fraud protection
policies and procedures.
The Whirling
Durbin Amendment
While this legislation was intended to
offer financial relief to business owners
like you, it doesn’t require that processors
pass the fee reductions through — and
some won’t. Some processors are looking
to absorb the windfall to benefit their own
bottom lines rather than pass the savings
on. In fact, the CEO of a major processor
recently told Wall Street analysts, “Just
be assured that there will be opportunities
for us to keep some of [the debit fee
reduction]. I mean the thought that a very
large merchant and a very small merchant
are treated exactly the same is not how it
works in a free enterprise system.”
The industry encountered a
similar situation in 2003 with the Wal-
Mart settlement that lowered debit
interchange rates by approximately
one-third. Rather than pass the savings
through to their merchants, many
processors kept the savings to boost
their own profits.
While the ruling was scheduled to
go into effect on October 1, it’s not too
late to take action to ensure you get
100 percent of the savings you rightfully
deserve. Start by following these tips:
1. Know the implications of the
reform. There are more than
300 pages of rules about the
implementation of the Durbin
Amendment, and while most retailers
don’t have time to review them — nor
would we necessarily recommend
it — business owners need to know
how the legislation affects them.
Take the time to fully understand
the information in this article and if
you’re interested, you can also get
more useful information from industry
associations and online.
2. Get your processor’s guarantee
in writing. Ask for written
confirmation from your processor
that it will pass 100 percent of the
Durbin rate decrease directly to your
checking account starting the first
day the legislation is implemented.
No excuses.
3. Verify that you are on interchangeplus
pricing model. There are two
basic types of card processing
pricing models. Tiered pricing or
discount rate models group together
interchange fees and processor
fees, making it difficult for business
owners to determine who is charging
what. Alternatively, interchange-plus
is a simplified model that passes
interchange fees directly to the
44 | InsideOutdoor | Fall 2011