What the Heck is the Durbin Amendment? (And How Does it Affect Your Business?)
Retailers may now refuse credit card purchases below $10 or charge a dollar for these purchases. The Federal Reserve was given the right to issue this rule and to decide the minimum purchase amount. It was set at $10. The Federal Reserve could change the amount. This new rule was approved by the Congressional “Durbin Amendment”.
The minimum must apply to all cards equally. Therefore, small businesses may wish to save money by setting a minimum $10 charge on Visa, MasterCard and Discover purchases. This may save on credit card processing fees which often eat up profits from small transactions.
A Level Playing Field?
The small business community is happy to be protected from profit-eating small transactions. However, just regulating it does not necessarily level the playing field with regard to the credit card processing fees which are very costly for small businesses.
Shopping around for better processing servers is the only way for small businesses to retain more profits from credit card transactions. Not every server charges the same fee, and small businesses can find a better deal by seeking out a better partner for processing debit and credit cards. Some companies claim to be able to save retailers up to 40 percent; so it is worth finding out if the costs are low enough to warrant switching.
Fixed and Non Fixed Costs
As you may know, two costs are fixed: interchange rates and assessments. Interchange rates are set by the card company and cannot be changed in a processing agreement. Assessments are a series of rates and fees that are the same for all card companies.
There are at least two non-fixed costs that you can use to negotiate lower costs. Insist on interchange pass through pricing. It does not have surcharges nor does it charge more for larger transactions, known as tiered pricing. Also, you should insist on a contract without cancellation fees. They may say that its standard business practice, but that doesn’t mean you have to accept it.
How Will Companies Handle Their New Right?
In terms of the Durbin Amendment, it does represent a major change from the long standing practice of Mastercard, Visa and Discover which required retailers not to set a minimum. If small businesses tried to set a minimum on the use of these cards, they would have been in violation of their contract. This was true despite the fact that small transactions are charged the same fees as larger ones. Thus, the profits from a small transaction were quickly canceled out by the credit card fees. The effect of this amendment depends on how large companies handle their new found right; otherwise small businesses will feel held back from requiring the fee or denying the charge.
Debit card purchases cannot be held to a minimum. These were not included in the amendment. Credit card processing contracts by the big three credit card companies state that no minimum may be imposed on debit card purchases. The Durbin Amendment did not include debit card purchases when it gave power to the Federal Reserve to regulate credit card processing minimums.
About the Author: This post contributed by the cofounder of CheapestMerchantAccounts.com, a website devoted to assisting small business owners in finding the best merchant account for their business with the lowest overall costs. Our reviews compare merchant service providers on the rates offered, presence of contract/cancellation cost, as well as the customer service experience a merchant will have once they sign their agreement. Their website covers many of the top processors in the industry including niche players as well as large enterprise processors such as Elavon.
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Five Steps to Not Getting Ripped Off on Credit Card Processing
The following is a guest post by Sean Harper, one of the co-founders of TransFS an online comparison shopping website that helps business owners quickly and easily compare credit card processors. Here Sean shows you how to be an informed shopper when shipping from credit card processing.
The majority of businesses now accept credit cards, and for many it is the most important financial service – the one that is most mission-critical and most expensive. Unfortunately, the majority of business owners get a really lousy deal on their credit card processing. According to a Federal Reserve publication (P.20) The Merchant-Acquiring Side of the Payment Card Industry: Structure, Operations and Challenges businesses with less than $1M in credit card receipts / year pay between 0.69% and 1.82% more than the wholesale (interchange) price that Visa and Mastercard pay for transactions. Here are my 5 steps for getting a good deal on your credit card processing.
1. Be Professional and Know What you are Looking For
If you need a particular processing setup to work with your POS system or internet gateway know that in advance, you will sound like you know what you are talking about and it will screen out processors that are not expert at dealing with that situation (which costs more in both the short and long run).
2. No Cancel Fee
Never, ever, ever agree to a cancellation fee. The majority of processors will waive their standard cancel fee to seal a deal. Having a cancel fee which often range from $300 to $several thousand gives the processor a terrible incentive to provide you good service and keep your fees constant.
3. Interchange Plus Pricing
- there are a number of structures for credit card processing contracts. Interchange plus is the best because you are charged the visa/mastercard "interchange" or wholesale rate and then a predetermined, constant markup above interchange. It’s like buying a car for a set markup over the invoice price, you know that the car dealer is selling you the car for $500 more than they bought it from the manufacturer so you know you are getting a decent deal.
As a friend of ours who runs a software company said: "saying interchange plus is like saying – ‘I know better, so don’t try to rip me off’". Steer away from ERR (Enhanced Recover Reduced) and Tiered pricing schemes. This blog article has some quotes from an executive at Global Payments, a bit credit card processor, about how they make less money on interchange-plus because it is less confusing .
4. Shop Around
Interchange plus offers are easy to compare to each other, so shop with at least 5 processors, make sure they understand that you are shopping around and they need to be competitive.
5. Don’t Rent or Lease Equipment
For the most part credit card processing equipment is quite cheap now. Those little black terminals that you see in small retail stores usually cost $100 – $300 and a full-fledged POS system is a little more than a desktop computer, less than $2000. If you own your own equipment there is less chance for them to sneak in extra profit by padding your lease payments and it also makes it easier to switch if something goes wrong in the relationship.
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