Processor: Durbin Has Reduced Interchange Fees for CNP Merchants by Half

May 29, 2012

In a recent post on its corporate blog, payments processor Litle & Co. presented aggregated numbers from its clients that show the interchange rates paid by its card-not-present merchants have fallen by around half since the law went into effect last October. According to Litle’s data, Visa debit cards have seen a bigger decrease in debit fees (53 percent less than before the law vs. 41 percent for MasterCard) largely due to the fact that a higher percentage of Visa cards are issued by larger non-exempt institutions (those with $10 billion or more in assets).

The Lowell, Mass.-based company says it expects merchants whose payments are processed on a “pass-through” or “cost-plus” basis to see the full effect of Durbin on its interchange fees, while those who are paying a bundled discount rate to their processor may not be seeing as much savings, according to Trevor Bass, head of Litle’s Business Intelligence/Data Science Group.

“In a pass-through model, the processor reports separately on all of the constituent components—interchange, assessments, and processor fees,” Bass says. “Some processors use a bundled discount rate, presenting the merchant with a per-transaction fee plus percentage rate that blends the components together. While simple to understand, this type of pricing effectively hides the true cost of doing business from a merchant, generally resulting in significantly higher processing fees, and does not guarantee that the Durbin savings are passed through .”