Heartland offers Durbin impact insights

Life under the Durbin Amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act has begun, and some merchant segments are seeing substantial benefits. But not all card-accepting businesses are faring well; those with large volumes of small-ticket items are paying more to accept debit cards than they were before Oct. 1, 2011.

QSRs lose, others gain

For example, Heartland Payment Systems Inc. reported that quick service restaurants (QSRs) it services are paying an effective interchange rate of 2.15 percent now compared to 2.08 percent in September. That's because Visa Inc. and MasterCard Worldwide eliminated the small-ticket interchange rates QSRs had enjoyed before the new pricing regimen imposed by the Durbin Amendment, Heartland noted in a statement detailing "actual Durbin impact statistics."

More upscale restaurants (and QSRs with average tickets exceeding $11) are among the biggest winners among Heartland's clients. The company reported that from Oct. 1 through 3, it passed along $671,652 in debit interchange price reductions to restaurants and, altogether, passed along nearly $1.78 million in debit interchange price cuts to customers during that three-day period.

"These savings are just the tip of the iceberg," said Bob Baldwin, Heartland's President. The company estimates the average merchant in its portfolio will save more than $1,000 in debit interchange between now and this time next year.

The Durbin Amendment directed the Federal Reserve Board to study and come up with a cap for the interchange assessments card acquirers collect from merchants on behalf of card-issuing banks. The Fed set an initial cap of 21-cents plus 0.05 percent of the transaction plus an additional penny provided certain security requirements are met. That amounted to about a 40 percent discount on the going rate for debit interchange in 2010, but it only officially applies to banks with $10 billion and more in assets.

The Durbin Amendment also requires debit card issuers to accept transactions routed through at least two competing electronic funds transfer networks.

Post-Durbin pricing

Heartland has been vocal about its intent to pass along merchant savings on debit interchange in the wake of debit interchange caps imposed under the Durbin Amendment, even as other acquirers and ISOs have hinted they plan otherwise. Several industry experts suggested that Heartland's position on interchange is driven largely by the fact that it uses an interchange-plus pricing scheme.

"Durbin Dollars should stay where they belong – in merchant's bank accounts – and Heartland is helping business owners keep more of their hard-earned cash," Baldwin said. "Merchants shouldn't take this for granted."

Here are some other post-Durbin Amendment statistics concerning Heartland's portfolio. Between Oct. 1 and 3, across Heartland's portfolio of 250,000 merchant locations:

• Sixty-five percent of debit card sales volume was subject to the mandated interchange caps.
• The average fee paid for regulated signature debit cards was 23 cents.
• The average fee paid for unregulated signature debit cards was 44 cents.
• The effective interchange rate for payments made using regulated signature debit cards was 0.80 percent.
• The effective rate for payments made using unregulated signature debit cards is 1.55 percent.

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