Merchant service providers are the real winners under new debit fee caps

(Examiner.Com) – After the first few months under the new debit fee caps, local businesses are opening their merchant statements and asking themselves, where’s the savings?

While big banks may be whining about lost fees from the Durbin Amendment, that’s only half the story. What they aren’t telling you is that their merchant services divisions have just received a windfall.

The new law caps the interchange fee issuing banks can charge businesses that accept debit cards. The fee is capped at just .05% and $.22 bringing down the average fee nearly 50%. This could potentially be a big savings for all but small ticket merchants.

What is not mentioned is that many local businesses are not getting the lower rates. The lost fees are only affecting the bank on the revenue derived from consumers they issue debit cards to. The bank also makes money from business owners who use their merchant services. As the processor, they are NOT REQUIRED to pass the savings along, but instead many are pocketing the savings meant for small businesses.

Local small businesses may be most vulnerable because many small businesses don’t pay the interchange fee directly. Instead they are at the mercy of their processors pricing program as to what (if any) benefit they will receive from the new law. This is even more confusing for the many that pay ‘bundled’ or tiered rates or that see such codes as BB, ERR, mid and non-qualified. These businesses are paying hidden mark-ups, surcharges and downgrades.

Processors benefit from the new capped rate, while they are free to continue charging businesses the same rates and seizing the savings. Some banks and processors have tried to trick their business customers into thinking they are getting the savings passed on by lowering rates at only a fraction of the full savings.

The only way a business can be sure you are getting ALL of the savings passed through, is through the Interchange pass through pricing model. Many banks and processors try to reserve this model for the largest of customers. It passes through the actual cost or interchange plus a fixed and transparent margin for the processor. Businesses under this model have seen an immediate savings because if their margins are the same, the lower cost is automatically passed through.

In this economy, small businesses have to be vigilant over their expenses and demand all of the savings they are entitled to.