Analyzing the Impact of the Durbin Amendment on Merchants

Fewer pieces of regulation in the payments space have been as divisive as the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection act. What was originally intended as a means of reducing merchants’ debit interchange fees has become a consistent headache for most merchants, large and small. The Federal Reserve of Richmond and Javelin Strategy and Research published a research study meant to examine the impact that the Durbin Amendment has had on merchant’s debit card acceptance fees. The report has been widely publicized by those merchants who believe that the interchange adjustment resulting from the Durbin Amendment has unfairly targeted certain industries. Not every single merchant has been impacted however, the amount of pain that merchants have felt can be determined by the merchant’s transaction mix and sector.
The Durbin Amendment aimed to level the playing field for merchants in response to rising interchange rates for debit cards. It did this by capping the debit interchange rate for non-exempt cards at a base fee of $0.21 + 0.05%, with an additional $0.01 for implementing fraud prevention measures. The new interchange calculation is meant to account for the card issuer’s processing costs and fraud prevention measures. This interchange rate applies to card issuing financial institutions with at least $10 B in assets. Those with less than $10 B are not subject to the same requirements. Unlike the previous calculations, the new interchange rate does not take into account transaction size, merchant type, channel of purchase, or security features used, such as EMV or PIN debit. This re-formulation of the debit acceptance rate has had an impact on all merchants that accept debit cards.
Not all merchants have been impacted negatively by the Durbin Amendment, but those who were have been so in a significant way. The Federal Reserve of Richmond, with the support of Javelin Strategy and Research, has released a study examining the impacts of the Durbin Amendment on merchants in order to determine if the Durbin Amendment’s goal of reducing interchange expenses for merchants is working as planned. The study was based on telephone interviews of merchants that serve on a pre-existing research panel, and sell goods and services direct to the public and accept debit card transactions. During the period of winter 2013 to January 2014, surveyors interviewed 420 merchants across 26 sectors in the United States. Questions were meant to assess the impact of the Durbin amendment on the following: the cost of accepting debit cards for both all transaction amounts, the cost of accepting debit cards for small ticket items, and the impact on retail prices for goods and services.
According to the findings, the survey suggests that the Durbin Amendment has had “a limited and unequal impact on merchants’ debit acceptance costs.” While the majority of participants in the study reported no change, or did not know if there was a change, in their debit processing costs, roughly 25% of merchants reported an increase in cost. Those merchants who have a high proportion of small ticket purchases experienced the greatest negative impact. In general, merchants who had a higher proportion of high-ticket transactions benefitted from the cap in interchange rates. Those with more small-ticket transactions were impacted most negatively.

  • Sectors with the largest reduction in debit costs were home furnishings, sporting goods, maintenance, and entertainment.
  • Sectors with the largest increases in overall debit costs were delivery services, fast food, office products, grocery stores, and home improvement stores.
  • Sectors with the largest increases in debit costs for small ticket items were casinos, maintenance, delivery services, fast food, and discount retail.

According to a study by the Atlanta Federal Reserve, Debit card payments have increased more than any other payment type from the period of 2009-2012. A continued growth in debit transactions, both online and in-store, threatens to continue the trend in debit acceptance costs increases for merchants.

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