The hottest topic for merchants today, The Durbin Amendment has sparked a great deal of discussion about pros and cons and how this will affect America. The banks are very oppossed to this regulation, but aren't all businesses against government regulation of their industry. Merchants seem unaware of the truth, mostly because they are too busy working to learn about this amendment. The truth is somewhere in the middle.
The Durbin Amendment is calling for a regulation of debit card interchange charged to merchants by banks to process debit card transactions. These fees vary on the type of transaction. Visa debit cards run without PIN numbers have an interchange rate of 1.19% + $.10 DPI fee. Additional rates exist for 'Small Tickets' (any purchase under $25), 'Rewards', etc. PIN based debit is extremely confusing as rates vary with each supporting platform (Star, NYSE, etc.). Visa, Mastercard, Amex, and Discover all set their interchange rates and work with Big Banks to establish these rates. There are over 200 rate bands within Mastercard & Visa alone.
The banks argue that these debit interchange fees provide the ability to have free checking, offer rewards programs, and provide greater identity security for their patrons. If the Durbin Amendment passes then banks would be forced to implement fees for checking accounts and debit card usage while removing security measures to protect your identity. The banks also argue that if this amendment passes regional banks and credit unions would go out-of-business due to the lost revenue from debit interchange.
Durbin backers believe that the money that merchants save will provide lower priced goods for merchants and help to increase spending and, therefore, improve economic conditions. This will help merchants to save up to 80% of their debit fees from being taken by the 'Evil Credit Cartels.' Thus more merchants will reap greater pofits and provide more stability in the economy and he job market.
The Durbin Amendment actually only affects 1% of banks & credit unions. The Amendment states that only banks holding $10 billion in assets are subject to the regulations. Therefore, regional banks and credit unions will be able to maintain their interchange profits.
The large banks are the companies that are most opposed to this amendment. The ironic part of this is that most of these banks are also direct processors. Bank of America, Chase, and Wells Fargo all make profits from interchange as the issuing banks and as processors of the transactions. These companies can be receiving fees in three ways from one transaction. 1.) They receive a portion of interchange as the issuing bank, 2.) they are paid additional fees for processing the transaction for the merchant, 3.) they receive a portion of the back-end processing as the bank for the merchant. So these banks receive 3 different sources of income from one retail transaction. This shows the intelligence of these banks. The other fact is that these banks have massive commercial campaigns to highlight rewards programs for their patrons. What they fail to mention is that these banks have charged the businesses that you shop at additional money to pay for these rewards and more. Most rewards give you back .01% value for your dollar. The increase in cost to a merchant for processing the rewards card over a regular debit card is .41%. Banks keep that additional money as more profit. Additionally, rewards programs are like gift cards, banks make out on 'breakage.' If you don't use your rewards by a certain time or you change services then your rewards are lost, only leading to more profits for the banks.
What I find most interesting is that banks have multiple sources of revenue but are never profitable. These same banks needed bail-out money (your tax dollars) to stay in business just a few years ago. Banks say that mortgages are not profitable, interchange fees are not profitable, loans are not profitable, processing is not profitable, etc. So much so that, according to the IRS, Bank of America posted a $3billion loss last year. Somehow their stock rose. Just looking at the numbers this doesn't make sense.
From a processor stand-point, Bank of America is larger than Heartland Payment Systems. Bank of America charges more than Heartland Payment Systems to there customers (a lot of hidden fees and lies). Yet Heartland Payment Systems is profitable. Do you believe that the banks really don't make money or are they really good at keeping your money?
I am not a fan of governemnt regulations and I like competition, but the Durbin Amendment will be a good thing for merchants. Not because it will reduce prices for customers, I don't believe it will, but because it will help businesses to be more profitable. This will allow for more stability, more jobs, and a balancing economy. PASS THE DURBIN AMENDMENT!
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