Heartland Payment Systems Inc. is prepared to pass along all of the upcoming reduction in interchange fees to merchants in the form of what it calls “Durbin Dollars.”
The move smacks of marketing hype to some analysts but still could nudge ISOs and other processors into turning over most or all the fee reductions to merchants, analysts say.
“We are the company that is going to send every single dollar that was mandated in the Durbin legislation to the place it was intended, to our merchants’ bank accounts,” Bob Carr, Heartland’s chairman and chief executive, said during an earnings conference call July 28.
The announcement could put pressure on the acquiring community to convey the full amount of the reduction to merchant clients instead of keeping a portion as fees, says Linda Perry, an independent industry consultant. She praised Carr for his transparency and his “philosophy of being straight with merchants.”
Mark Dunn, founder of Field Guide Enterprises LLC, a Hartland, Wis.-based consulting firm, professes “great respect” for Carr, but he labels Durbin Dollars as “marketing spin.”
The scheme amounts to hype, agrees Matt Clyne, president of the Washington-based Direct Connect consulting company, because Heartland already was using “interchange pass-through” pricing that would not allow for keeping any part of the interchange-fee reduction.
Even if Durbin Dollars amount to little more than a marketing ploy, the idea has succeeded because the company’s stock price rose sharply following the conference call, Dunn says. Heartland's shares rose as much as 14.6% on July 28, to $22.17, after the company reported second-quarter earnings that beat analysts' estimates.
Carr’s comments in last week’s call mirrored those he made in February, when he noted during a fourth-quarter conference call with analysts that the last time a major reduction in debit interchange occurred following a class-action settlement in a lawsuit led by Wal-Mart Stores Inc. against Visa Inc. and MasterCard Worldwide in 2003, Heartland saw a 40% increase in market share because it passed along the price decrease to its clients.
Analysts have said Heartland could gain market share as a result of the new debit card rules, which the Federal Reserve Board finalized in late June, because of its pass-through policy. Some acquirers charge merchants a marked-up cost.
“Unlike other acquirers, which generally pursue ‘bait-and-switch’ pricing, Heartland’s transparent interchange-plus model, coupled with its increasingly efficient captive sales organization, should fuel” revenue growth, Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey, wrote in a research report published in May.
Heartland last week said second-quarter sales volume involving small and midsize merchants totaled a company record $17.5 billion, up 7.2% from a year earlier, helping to drive one of the best quarters for the company in recent years.
Heartland said its net income for the quarter ended June 30 doubled, to $12.3 million, or 31 cents per diluted share, from a year earlier. The company's net revenue, which excludes interchange, dues and other fees it passes along to banks and card networks, was up 6.1%, to $122.2 million, because of higher transaction-processing volume.
The move smacks of marketing hype to some analysts but still could nudge ISOs and other processors into turning over most or all the fee reductions to merchants, analysts say.
“We are the company that is going to send every single dollar that was mandated in the Durbin legislation to the place it was intended, to our merchants’ bank accounts,” Bob Carr, Heartland’s chairman and chief executive, said during an earnings conference call July 28.
The announcement could put pressure on the acquiring community to convey the full amount of the reduction to merchant clients instead of keeping a portion as fees, says Linda Perry, an independent industry consultant. She praised Carr for his transparency and his “philosophy of being straight with merchants.”
Mark Dunn, founder of Field Guide Enterprises LLC, a Hartland, Wis.-based consulting firm, professes “great respect” for Carr, but he labels Durbin Dollars as “marketing spin.”
The scheme amounts to hype, agrees Matt Clyne, president of the Washington-based Direct Connect consulting company, because Heartland already was using “interchange pass-through” pricing that would not allow for keeping any part of the interchange-fee reduction.
Even if Durbin Dollars amount to little more than a marketing ploy, the idea has succeeded because the company’s stock price rose sharply following the conference call, Dunn says. Heartland's shares rose as much as 14.6% on July 28, to $22.17, after the company reported second-quarter earnings that beat analysts' estimates.
Carr’s comments in last week’s call mirrored those he made in February, when he noted during a fourth-quarter conference call with analysts that the last time a major reduction in debit interchange occurred following a class-action settlement in a lawsuit led by Wal-Mart Stores Inc. against Visa Inc. and MasterCard Worldwide in 2003, Heartland saw a 40% increase in market share because it passed along the price decrease to its clients.
Analysts have said Heartland could gain market share as a result of the new debit card rules, which the Federal Reserve Board finalized in late June, because of its pass-through policy. Some acquirers charge merchants a marked-up cost.
“Unlike other acquirers, which generally pursue ‘bait-and-switch’ pricing, Heartland’s transparent interchange-plus model, coupled with its increasingly efficient captive sales organization, should fuel” revenue growth, Andrew Jeffrey, an analyst with SunTrust Robinson Humphrey, wrote in a research report published in May.
Heartland last week said second-quarter sales volume involving small and midsize merchants totaled a company record $17.5 billion, up 7.2% from a year earlier, helping to drive one of the best quarters for the company in recent years.
Heartland said its net income for the quarter ended June 30 doubled, to $12.3 million, or 31 cents per diluted share, from a year earlier. The company's net revenue, which excludes interchange, dues and other fees it passes along to banks and card networks, was up 6.1%, to $122.2 million, because of higher transaction-processing volume.
Ed McKinley contributed to this article.
