Debit Card Reform May Increase Costs for Retailers

The Durbin Amendment portion of the Frank-Dodd Financial Reform Act, which went into effect on October 1, was intended to save retailers money by reducing the amount they have to pay the bank for each debit cards transaction. Prior to Durbin, the average debit card "swipe fee" was roughly 44 cents per transaction. Durbin capped the fee at 24 cents. But, instead of affording retailers savings, the new fee may have the opposite consequence of costing them more. This is because now, instead of the fee varying according to the amount of the purchase, the fees are more or less standard regardless of how small the final transaction amount.

Robert Donovan, the United States assistant treasurer for McDonald`s recently commented on the legislation, stating that, in his opinion, his company did not gain anything from the amendment. Similarly, Richard Peck, the senior director for corporate finance at 7-Eleven, remarked that it yet remains to be seen whether the convenience store chain will see any benefits as a result of Durbin.

Peck predicted a decrease in expenses for their processing costs on gas purchases but a rise in costs for purchases made inside the store. He went on to say that future costs will be easier to anticipate given the new fee structure.

"We will know with some certainty where our rates will be," said Peck according to Retuers.

The treasurer for Walmart remained hopeful that Durbin would eventually lead to the reform of fees retailers have to pay each time a customer pays using a credit card, referring to Durbin as a "good start."

Banks are reporting losses estimated to amount to nearly $8 billion annually as a result of the amendment. However, it does not seem that retailers are to gain as much as initially forecast, particularly those that rely on many small purchases to make up the bulk of their revenue.

However, all executives weighing in on the issue asserted that, should any savings become evident as a result of the Durbin Amendment interchange fee cap, it would be passed immediately on to customers. It was hoped that a trickle-down effect such as thins would benefit consumers.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.