Thanks to the Durbin Amendment to the Financial Services Reform Law the cost to process debit cards has been slashed from 0.95% to 0.05%. Most businesses will never see these cost savings because their processor charges them fixed or flat rates for their transactions. We estimate that over 98% of businesses currently have a fixed, flat or tiered rate pricing structure with their processor, so their processors will be having a big party this month at your expense. That’s because as of October 1 the new debit card rate cap went into effect, so if you’re business has a rate of 1.59% for debit cards, your processor’s revenue just jumped from 0.64% (which is 1.59% – 0.95%) to a whopping 1.54% (1.59% – 0.05%). That’s almost a 2.5x increase in your processor’s revenue.
What do you the small business owner get out of this deal? Nothing. That’s unless you’re with a processor like Leap Payments who offers cost plus pricing.
With Leap Payments the cost caps established by the Durbin Amendment and enforced by the Federal Reserve are automatically passed along to our clients, so our clients enjoy the full benefit of these reductions. While the objective of the amendment was to reduce businesses’ costs to accept credit cards, this has actually backfired as only the largest businesses (and Leap Payments clients) enjoy cost plus or interchange plus pricing. This is a significant flaw in the regulation because Congress simply doesn’t understand how typical businesses pay for their credit card processing, so the processors are reaping all the benefits at the expense of the banks and now the consumers (see below). In fact, only 2% of business owners will see this benefit, but if you stand up and make a switch you can be part of this group.
Background – Why Bank of America Just Introduced Debit Card Fees
A majority of the revenue from debit card transactions actually gets paid to the bank that issued the card. So by regulating and slashing the debit card processing rates directly impacts the bank’s revenue. That’s why Bank of America has announced that they will now be charging $5 per month to consumers to use their debit cards. When the Durbin Amendment was originally proposed the banks informed Congress that they would have to raise debit card fees to offset their losses from a federally imposed rate cap, so now Bank of America is simply fulfilling their promise. Senator Durbin is predictably unhappy with this backlash and has made public statements that consumers should choose another bank, but we expect other banks to introduce similar debit card costs to consumers.
One insider compared this to Congress telling McDonalds that they could only charge $0.10 for a soda, so of course McDonalds will have to raise the costs for a burger to offset their losses.
The Bottom Line
While Leap Payments competitors are preparing for a big party this month, we’re hard at work reducing your costs so your business can succeed. Our philosophy is simple, we share our industry knowledge to empower your business success. Leap Payments has grown over 250% since last year, so business owners are clearly fed up with the tactics of our competitors and the word is getting out that there’s a simply better way to process credit cards for your business. Honestly better credit card processing, only from Leap Payments.
Recent Posts
