Merchant Service Advisor

Financial services reform bill = falling debit card rates?

July 2010

Assistant Senate Majority Leader Dick Durbin has successfully added a provision to the financial services reform bill that will allow “the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred.”

Basically business owners believe that they are being over-charged to accept a debit card which has led our elected officials to step in and regulate the fees and potentially provide some relief. While we don’t feel it’s our place to comment about what interchange rate is fair or not, our clients and prospects tell us every day that they are paying too much to accept credit and debit cards.

The debit card interchange rate for signature debit transactions (a transaction with a debit card processed without a PIN entry) was recently decreased by Visa to 0.95% plus $0.20 and MasterCard has set debit card rates at 1.03% plus $0.15. PIN debit rates vary based upon the network accessed and vary from 0.75% to 1.25% plus $0.10 to $0.20 per transaction. Assuming that the current version of the financial services reform bill is signed into law these rates will be under the direct scrutiny of the Fed.

Business owners commonly tell us that they consider accepting credit cards as “a necessary evil”. “Necessary” because their customers prefer to pay with credit/debit cards and “evil” because the business has no say about how much they’re charged to accept credit cards. Clearly these business owners believe that the fees to accept cards are neither reasonable nor proportional to the costs or value provided.

We believe it’s sad that the government has identified that financial reform is needed for debit card interchange rates, but we’re happy for our business owners that some relief may soon be coming their way. As a Leap Payments client, any reductions in debit interchange rates that result from debit interchange regulation will be directly passed onto our clients.

Many of our competitors, banks, and credit unions fought vigorously against this regulation as they will receive less revenue, but at Leap Payments we offer interchange plus pricing which means that whenever a rate decrease happens our clients will directly and immediately receive the benefit of the lower interchange rates. We think that’s good for our business and we know it’s good for your winery.