Retailers such as 7-Eleven Inc. pulled out the stops to get consumer support during the merchants’ lobbying campaign to win lower debit interchange fees.
And while neither retailers nor banks are entirely pleased with the Federal Reserve Board’s final ruling, observers are now wondering when consumers may see any savings at the point of sale from the lower debit-interchange rates.
Industry executives from electronic payments software vendor ACI Worldwide Inc. debated this and other questions surrounding the Fed’s rule during a July 6 roundtable teleconference.
The conference came on the heels of the Fed’s decision to raise the cap on debit interchange fees to 21 cents, plus extra for fraud costs, from its originally proposed 12 cents (
“Are the retailers in a position to pass [the interchange savings] to their customers?,” Rob Seward, product line manager for electronic payments software vendor ACI Worldwide Inc., asked rhetorically. “[Merchants] wanted public [support] and now they have to extend the savings.”
Merchants in the near term should begin analyzing their current payment-processing financial data such as how their payments are divided between cash, credit and debit, and which debit-card transactions are PIN or signature and track average transaction amounts, Seward suggested.
“Retailers need to do this analysis and then track the changes in October” when the Durbin amendment goes into effect, he added.
While banks came away with a better rate than what was originally proposed, after Oct. 1 institutions are likely to see little profit from debit card transactions, Jim Schlegel, ACI senior product manager, said during the call.
“Banks will not only continue to adjust current products” to regain lost interchange revenue, but prepaid debit cards remain a viable option to a bank’s offerings,” Schlegel said.
Merchant acquirers also will find their businesses changing in the aftermath of the new Fed debit-interchange rule.
Acquirers will need to adjust their pricing and educate merchants how they can save money under the new rates, Dan Heimann, ACI manager of solutions consulting said during the call.
“Acquirers need to educate the merchants,” Heimann said. “If not, then that acquirer’s competition will do it.”
Heimann added that acquirers’ pricing may depend on how the card networks structure a proposed two-tier interchange-rate system.
Visa Inc. and MasterCard Worldwide are expected to create a two-tiered system that would exempt financial institutions with less than $10 billion from the new pricing rates, in accordance with the Fed’s rule.
Industry observers await Visa’s first guidance on the new debit-interchange rule in a widely anticipated update the company will provide later today.
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