Merchants, acquirers, processors, anti-fraud providers and others serving the card-not-present payments market met in Orlando, Fla. recently at the first annual CNP Expo. For our readers who were unable to attend the groundbreaking event, CardNotPresent.com will be offering glimpses of the important information covered in two-and-a-half days of panel discussions on a host of issues relevant to merchants that take card-not-present payments and the technology providers that serve them.
By D.J. Murphy, Editor-in-Chief
When the Durbin Amendment limiting debit interchange was signed into law as part of the Dodd-Frank Wall Street Reform legislation by President Obama in 2010 it was perceived as a clear win for merchants and a loss for large issuing banks. In May, about six months after the provisions of the law were implemented by the Federal Reserve, the central bank published comparative information that seemed to back up this contention: Overall, interchange fees collected by issuers fell on average from 43 cents per transaction in 2009 to 24 cents per transaction for non-exempt issuers in 2011. But the reality for merchants is not quite as simple as cashing in Durbin savings.
At the CNP Expo in Orlando this May, I moderated a session during which panelists discussed who the real winners and losers in the post-Durbin world were so far, whether all merchants have benefitted from the law, how issuers and networks have reacted to the new environment and how merchants might take advantage of the non-interchange provisions of the law.
While the Fed report showed that merchants are better off overall, all the panelists agreed that some made out better than others (especially those whose processing contracts call for them to pay “pass through” or “cost-plus” pricing) and merchants that deal mostly in low-value transactions are actually paying more interchange.
“Merchants who are on pass-through pricing definitely benefitted from this legislation and the larger the merchant, the more they benefitted,” said John Sullivan, partner in Paul Larsen Consulting.
For smaller merchants, however, the opposite occurred, according to Ralph Bianco, COO of Adaptive Payments. In fact, Bianco said, if you’re a merchant that pays a bundled “discount rate” to your processor rather than a cost-plus rate, your acquirer could be keeping any Durbin savings.
“I think acquirers are pocketing differential for those merchants that are priced at a discount rate,” Bianco said. “At some point I would encourage [merchants on this pricing plan] to really evaluate your pricing.”
Even though larger merchants are seeing substantial savings, however, the panelists were quick to point out that issuers and networks have not just let interchange revenue go without a fight. New fees (e.g., Visa’s Fixed Acquirer Network Fee) and new interchange categories (e.g., the networks' decision to increase formerly low rates on low-value transactions) have made how much savings merchants will see unclear.
Sullivan said, given the network’s proclivity to invent new fees to replace lost interchange, it would be unwise for merchants to include the savings in future budgets.
Panelists agreed that the network’s reaction was heavy handed and invited further government scrutiny. Bianco called Visa’s FANF “extortion” and Jim Shanahan, the president of Shanahan and Associates and the third member of the panel, suggested that the reaction of the networks may have been quite different prior to those companies going public, but the moves they have made since Durbin was passed suggest that FANF is not the last interchange-replacing fee merchants will see.
Merchants are not powerless under the new regulatory scheme, however. Some provisions of the new rules, which they may not be aware of, can be an important way for merchants to continue to drive down their costs, according to Sullivan.
“Specifically, it’s the ability to discriminate [among cards],” he said. “Some of you might not be able to discriminate, might not know how, but you can now offer discounts for different forms of payment.”
Stay tuned to CardNotPresent.com in the coming weeks as we present summaries and audio clips from the most exciting and relevant sessions at the 2012 CNP Expo. If you’re interested in being involved in next year’s event as a sponsor, exhibitor or attendee, contact Steve Casco at email@example.com.