ORLANDO, Fla.—When Congress passed the Durbin Amendment back in 2010, their intent was to lower retailers’ interchange fees from accepting debit cards. But a new survey of merchants by the Federal Reserve Bank of Richmond, released Wednesday at the NACHA Payments conference, found that, since the rule took effect in 2011, debit acceptance costs for sales $10 or less have actually increased.
Fully 27 percent of merchants said debit acceptance costs actually increased for transactions $10 or less. Another 47 percent reported no change, and 3 percent said they saw a decrease. The Richmond Fed was particularly surprised to see that 24 percent of respondents said they did not know. “That’s the question we’re asking—why didn’t they know? We want to dig into that a little bit more,” said Scarlett Schwartz, Ph.D., a payments specialist for the Richmond Fed.
Forty percent of merchants said their costs increased post-Durbin. Nearly half (48 percent) reported no change to their costs, while 4 percent said costs decreased. Eight percent said they didn’t know.
Forty-one percent said they did not change their debit/credit acceptance policy following passage of the Durbin Amendment. Just 23 percent changed their policy. The majority of merchants who changed their debit policy indicated that they have added acceptance for major PIN debit cards and major signature cards.
Sixteen percent of low-average transaction value (ATV) merchants and 26 percent of high ATV merchants said that sales below $10 are simply not profitable due to the fees.
"According to this report it really seems like the intention of the Durbin amendment didn’t come through since there are few respondents reporting cost decreases," said Magnus Carlsson, manager, treasury and payments at AFP. "Especially, this seems to have affected the retailers with high volume of low-value transactions the most. These retailers have, according to the findings, seen their previously discounted interchange fee being replaced by the higher, regulated fee. As these retailers also face very tough competition, they are reluctant to raise the price to the customer. This, in turn, may lead to lower margins and could cause a downturn for this industry."
Schwartz did note that there were $15.4 billion in debit interchange revenues in 2012, a 24.3 percent decreased from 2011. “We can't say that that was attributable to the Durbin Amendment, but what we can say is that there was a big decrease and that's a lot of money on the table,” she said.
But even though retailers as a whole may have benefited from the Durbin Amendment, low ATV merchants are taking a loss. Prior to Durbin, transactions of $15 or below generally had discounted debit interchange fees. “For a $2 ticket amount, pre-Durbin, the interchange fee was 7 cents. After Durbin, it was around 23 cents,” said Schwartz.
Schwartz stressed that the findings of the survey were preliminary. “We just got this data set weeks ago,” she said. “We feel like the analytics we are going to do are going to continue to evolve; they need to be a lot deeper. We wanted to just get some preliminary research.”
Despite the fees merchants are incurring on low ticket transactions, the majority of them appear unwilling to jeopardize their relationships with customers. The Richmond Fed expected to see low ATV merchants attempt to steer customers to different payment methods, such as cash or check. However, 92 percent of low-ATV merchants said they are unlikely to encourage customers to use a different payment method—likely because cards offer speedy transaction times and merchants are unwilling to inconvenience customers.
The Durbin Amendment also has not made a dent on consumer prices:
- 80 percent of low-ATV merchants said they made no changes to pricing, while 20 percent said they increased prices.
- 74 percent of high-ATV merchants made no changes to prices, while 24 percent increased prices and 2 percent decreased them.
“We asked [low-ATV] merchants about this in our meeting last week and again, their number one focus is the customer,” Schwartz said. “With competition very keen in the food service business, they weren’t willing to upset their customers by increasing prices.”
Fully 91 percent of merchants said they have no plans to implement surcharges. Retailers in both the low and high-ATV groups again said they were not willing to upset their customers.
Lastly, retailers were asked if they charge cash-back fees for withdrawing money at the point-of-sale. Pre-Durbin, about 20 percent of low-ATV retailers said they charged cash-back fees but, post-Durbin, that number doubled.
Schwartz noted that further research and several whitepapers are planned. “Everything has an unintended consequence,” Schwartz said. “The best policy in the world is not going to be good for somebody, and that’s what happened here. It was a good intention, a good idea, the thought was in the right place and the evaluation was sound. But there are factors you just can’t always anticipate when you’re trying to make a decision such as this.”