WESTON, Fla.–Independent sales organizations, concerned about how proposed new debit-interchange rules may affect their operations, are gearing up for changes even as experts say they cannot predict the shape those changes ultimately might take.
The Federal Reserve Board’s proposed new rules that would cap debit interchange at 12 cents per transaction and provide merchants with the opportunity to choose from at least two different networks where to route debit transactions are almost certain to usher in “new processes” for ISOs, Sarah Weston, an attorney with Southfield, Mich.-based Jaffe Raitt Heuer & Weiss, said March 22 while addressing attendees at the Southeast Acquirers’ Association’s 10th annual conference in Weston, Fla.
But even when the Fed issues its final rules next month, as expected, the effect on ISOs will not emerge immediately, Weston said.
“Once the rules are finalized, card issuers will have to decide how to adjust their actions, which in turn will cause reactions from other industry participants, including payment networks. And eventually these changes will have some trickle-down effect to ISOs,” Weston said. But it is “hard to say at this point how ISOs will be affected or when we will see changes,” she added.
One possible effect of the proposed rules is that ISOs will play a role in helping merchants determine network-routing decisions upfront.
“It’s unlikely that merchants will make real-time transaction-network routing decisions,” Weston said. “When a merchant signs a processing contract, that’s probably when they will make decisions about how their transactions eventually will be routed.”
ISOs and agents attending the session expressed varying degrees of concern about the proposed rules’ effect on their businesses. Many were divided about whether new legislation proposed this month to delay the rules’ implementation would be enacted into law.
“There will be a domino effect on ISOs from the proposed rules, and it could have some very serious negative consequences for a lot of people here,” said Brett Mansdorf, a principal with Dover, Fla.-based Majestic Bankcard LLC. “I’m very nervous about (the Durbin amendment), and I’m pretty sure it’s going through as proposed.”
Jerrel Olive, a general partner with Apex, N.C.-based BankCard Source LLP, believes lawmakers or regulators ultimately will make significant changes in the proposed new debit-interchange rules. “The Fed may come out with final rules next month, and this latest legislation to delay implementation may fall short of votes needed,” he said. “But I believe that within two years there will be major changes in the Durbin amendment as it is currently outlined.”
At least one ISO executive, co-owner of a firm launched last year, says the relatively small size of his company could be an advantage in coping with the Durbin amendment. “I’m not a fan of the legislation, but as a smaller ISO, I’m able to be more flexible and adjust to changes like the Durbin amendment much more quickly than a large processor,” said David Leppek, a principal with Newark, Del.-based Transactions Services. “Our company is nimble and flexible, and we can make adjustments as needed. But for large processors that are relatively locked in to their business models, it’s probably going to take them $10 million and at least 10 months to react to Durbin.”
Smaller ISOs may be able to change their pricing and offerings “on the fly,” whereas larger processors “typically have to launch a huge national campaign” to react to marketplace changes, Leppek said. ■
