Don’t be that Merchant: Get your Merchant Discount - By Avi Jorisch

In 2010 the merchant services industry experienced a watershed. In an effort to help consumers pay less for merchant services, U.S. congress sent a proverbial shot across the bow when it issued the Durbin Amendment of the Dodd Frank Wall Street Reform and Consumer Act. Above all, this piece of legislation lowered the interchange rates charged for specific categories of credit cards. For example, debit cards, starting 1 October 2011, were now to have an interchange rate of .05% and $0.22/authorization.

What most Member of Congress and merchants fail to understand, however, is that the Durban amendment does not actually guarantee lower rates. A merchant only benefits from the legislation if they are on the right type of plan. Unfortunately, processors in general tend to pocket the lower interchange rates for themselves and fail to pass on the savings to their clients.

The Merchant Services Industry

The credit card business is very similar to the auto industry. Car manufacturers like Ford/Honda/BMW all build their cars and promote their brand – but ultimately, it is a dealership that actually sells the vehicles for whatever they can sell the car for. Prices, therefore, tend to fluctuate significantly from dealership to dealership because some are more honest than others. When you go onto the lot, the car manufacturer has already been paid and the dealership now makes anything above their cost. The merchant services business is similar. But if a merchant is savvy, they peg their processing costs to the wholesale rates charged by the associations and add a fixed rate (generally in basis points) that goes to the processer.

Know What to Ask For

Merchants that do a quick search will quickly find themselves overloaded with information on the Durbin amendment. Some processors will give their clients the discount due to them, others will proceed in a less than honest fashion. Sadly, many processors will promise their clients interchange pass through pricing (the most competitive plan on the market) but the actual contract doesn’t deliver on their promises. If you see anywhere on your contract – or if are already processing credit cards, review your statements - the word “qualified” beware! It means that all cards will be charged at that rate PLUS additional downgrades on each additional cards that are not qualified. What most merchants don’t understand is that 80% of cards on the market do not fall into the “qualified” category! Merchants on this plan are on tiered pricing and will not reap the savings of the Durbin Amendment.

So for example, as stated above a debit card transaction has an interchange rate of 05% and $0.22/authorization. On a qualified pricing plan where the rate is 1.65%  the processor has actually walked way 1.6% in processing margin – which is huge!

In order to ensure you are on the right type of plan, merchants should do an analysis. Doing so guarantees you are on the most transparent plan on the market and reaping the discount.