The Durbin Amendment’s Impact on Merchants: FeeFighters’ Perspective

The Durbin Amendment allegedly protects merchants from higher interchange fees on debit card transactions by capping the swipe fee at 21 cents plus 0.05 percent of each transaction. When we first heard about it, we wondered what would stop credit card processors from pocketing the extra savings for themselves rather than passing it on to their customers. To get more information, we asked our friends at FeeFighters to weigh in on the issue. FeeFighters is a website that allows you to comparison shop credit card processors. Since they act as a middleman between merchants and credit card processors, the Durbin Amendment doesn’t affect them directly. But they’re passionate about watching out for their customers, who aren’t likely to know much about how the Durbin Amendment affects them.

What merchants don’t know can hurt them

“Most merchants aren’t familiar with the Durbin Amendment at all,” says Sheel Mohnot, who oversees FeeFighters’ business development and partnerships. “At most, they may have heard about it, and if they have, they probably assume they’ll benefit from it without knowing much about how it works.” After creating a Durbin Amendment-inspired interchange fee calculating tool, FeeFighters discovered that merchants generally don’t see any benefit unless they have interchange plus pricing. By Sheel’s estimate, 80 percent of merchants have tiered pricing plans, which allow credit card processors to tack on extra fees without providing any transparency. In this case, the Durbin Amendment savings aren’t passed on to the merchant, because credit card processing companies have every incentive to keep that information hidden. Needless to say, our suspicions were confirmed, but at least the circumstances are more predictable than we thought.

The Durbin Amendment only helps small merchants who do their homework

The saddest part of all this is that the Durbin Amendment’s benefits will be nullified for those it was meant to help: small merchants. Big box retailers like Wal-Mart and Home Depot, which almost always have interchange plus pricing plans, lobbied for the amendment to save money, and big banks lobbied against it to protect their debit card transaction profits, plain and simple. In a way, both parties won. The amendment passed, but at a much higher cap than expected. It’s still nice to know that there is something in it for small merchants, as long as they do their homework. When the Durbin Amendment goes into effect on October 1^st, credit card processing companies could very easily make extra profits off uneducated merchants. This is perhaps what FeeFighters dislikes most about the Durbin Amendment. Although they agree it’s a small improvement for merchants under the right circumstances, it still allows credit card companies to take advantage of merchants who don’t know the difference between interchange plus pricing and tired pricing. “Alternatively,” Sheel told us, “we would like to see a law requiring interchange plus pricing for all credit card processing plans.”

FeeFighters’ merchant-friendly business model

FeeFighters works with many of the top credit card processing companies, including FirstData, but they insist on only offering interchange plus pricing plans on their site, because they believe that’s better for their customers. For a long time, this type of plan was only available to businesses with a high volume of debit card transactions each month, but increased competition has made it increasingly available to low-volume and new businesses. With an interchange plus pricing plan, the credit card processor is allowed to charge a small, fixed markup for the processing fee, but that’s it. This prevents them from pocketing the extra savings from the Durbin Amendment. FeeFighters also goes the extra mile to educate their customers about the interchange rate. Every time it changes, they send out an email, so their customers have an additional tool for finding the best possible credit card processing deal they possibly can. By putting customer relations first, they believe it’s better for merchants, and better for their business too. “We do better that way,” says Sheel, “and get a lot of word-of -mouth recommendations.”