Contrary to what debit card issuers claim, merchants do not want a “free ride” on debit card interchange, contends a prominent convenience-store owner who has spent years lobbying for changes in payment card interchange-rate policies.
Most merchants would be happy to pay their fair share in interchange for card acceptance, which they consider to be a valuable service. But historically networks mostly have raised rates with no clear explanation why, says Dennis Lane, who owns a 7-Eleven Inc. convenience store in Quincy, Mass.
The Federal Reserve Board in December issued proposed rules on debit card interchange fees and routing that would prohibit issuers from restricting the number of debit networks available to merchants to route transactions (
Issuers widely have claimed that merchants want to pocket the savings they could gain from lower debit-interchange rates, saying there is no guarantee they would pass any savings on to consumers (
“I know that credit and debit cards are an electronic-payment service that provides a huge benefit to us, and I don’t think it should be free,” Lane tells PaymentsSource. “I just want to pay what is the fair amount, and merchants have never had a say in that.”
On many small transactions, “the merchant is upside-down” on profits because of debit-interchange fees, says Lane, whose store accepts only PIN-debit transactions.
For a typical $40 PIN-debit Interlink purchase, the interchange fee for retail merchants now ranges from 30 cents to 45 cents, depending on volume, according to PaymentsSource calculations using Visa Inc.’s published rates.
Lane estimates that 35% to 40% of customers in his store pay with plastic, including teenagers who he says increasingly carry debit cards.
“We all know refusing to accept cards is not an option; it’s a customer service, and I’m not going to turn anyone away who’s trying to pay with a card,” Lane says.
What he objects to is that in recent years debit interchange rates have steadily crept higher, coincidentally as more consumers began using debit cards for everyday purchases. Merchant acquirers pay interchange to card issuers and pass the cost along to their merchant customers as part of the discount rate.
Lane says he can negotiate different rates and prices with all of his other suppliers, but he lacks any such options when it comes to paying credit and debit card interchange fees. “All I want is the chance to talk to the networks and the issuers about what is a fair price for accepting plastic, not getting away with something for free, which is what the issuers are continually implying during the discussions on the Fed’s proposal,” according to Lane.
As president of the New England 7-Eleven Franchise Owners Association, one of 38 similar associations around the U.S. representing franchise owners in each region, and immediate past president of a national coalition of 7-Eleven franchise owners, Lane has traveled to Washington, D.C., several times to help lobby for merchants’ ability to negotiate interchange rates.
Many financial institutions in the past few years focused on lobbying to maintain the status quo on credit card interchange, but merchants were seeing debit-interchange costs increasingly cutting into their bottom lines as the proportion of debit transactions increased, Lane states.
“Unlike some other people involved in this issue, we were not at all surprised to see debit-interchange legislation surface before anything addressing credit card interchange,” Lane says. “Credit card interchange rates have been a problem for a long time, but debit card interchange has grown more serious as more and more people carry these cards for routine purchases.”
Debit interchange eats into the profit margin on small transactions, “so I may as well give the merchandise away in some cases,” Lane contends. Consumers tend to use credit card for larger purchases.
The proposed Fed rules “would provide us some relief,” Lane says, echoing the sentiments of a growing number of merchants who are posting comments to the Fed’s website.
The comment period ends Feb. 22. In accordance with the so-called Durbin Amendment within the Dodd-Frank Act that passed last year, the Fed plans to issue final rules, which would go into effect in July, by April 21.
What do you think about this? Send us your feedback.
