The Durbin Ammendment vs Debit Cards

Or ‘How Green Was My Folly’…

Forgive the play on words. It’s not all that bad, I just absolutely abhor when the government gets in and messes with things when it has no concept of the repercussions. In this case (just this one), the outcome is positive. At least for now.

Once we get past all the hocus pocus and rhetoric, the Durbin Ammendment simply puts a cap on fees that the banks charge on debit card charges to businesses, not to individuals. If you own a business, and you accept plastic, come this October 1st your fees will go down on each transaction that is made at your business and paid with a debit card. The main argument behind this is simply that it is not a line of credit, and businesses should not be charged if a customer is paying with a debit card as it is against a finite amount of cash in a bank as opposed to a line of credit.

This will affect your business. At the end of the day, many people simply shrug and apathetically say, “This won’t really affect me.” Wrong. If you take plastic, this will affect you unless you are the 4% or less of businesses whose individual transactions are so high, no one purchases from them via debit. take this company I was consulting for. They needed to purchase a credit card processing software package and they did $30 million a year in credit card sales. Wait a minute… that’s not accurate enough. They did 30 $1,000,000 transactions a year. Every year. Goodie for them. They theoretically had the ability to accept credit cards, but unless a customer had $1 million cash sitting in their account; there was no sale.

How will it affect me? That’s a much better question.

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Debit Ain’t What It Used to Be…

And sometimes that’s a good thing.

Firstly understand that a debit transaction should be about half the cost of a credit card transaction. If you own a business and someone comes in and pays with their debit card, the only reason why you’re not kissing them is because cash is even cheaper.

Do they actually even make cash anymore?

Let me make sure that is clear: A debit card should cost your business half of what a customer with a credit card costs, and no that doesn’t mean they have to use their PIN number either. Straight out of the wallet a debit card is cheaper. Loads cheaper. So if you are a retail organization where your customers are physically in front of you with their card, what rates are you paying. On a non rewards credit card, you’re probably paying about 1.64% and $0.18 per transaction to accept that card as payment. However, a debit card should be about 0.84% and $0.32 per transaction. A little higher on the per trans fee, but at most businesses, that doesn’t throw off the scale.

Recently a business I consult for was looking at possibly changing their provider and wanted me to review their numbers. They had a good rate of 1.61% on their credit cards and 0.83% on their debit. The new provider was going to give them 1.60% That is a change of one Basis Point in our industry (or more accurately would save them 1/100th of a percent). In other words: nothing. What’s worse is they didn’t see the shell game the new provider was playing. The proposed new rate would be 1.60% for everything. Credit and debit cards alike. So they would have saved 0.01% on credit cards and paid a premium of 0.76% for their debit cards over what they were paying currently.

To make matters worse, this business took in 90% debit cards. Effectively their rate would have doubled had they moved forward. This is because something really good came out of the Durbin Ammendment as a total accident: The rate of debit cards effectively dropped to the level of the PIN being entered in whether it was or not. This means less hassel for the business to get the better rate of a debit card, but that assumes of course that their merchant account gives them the better rate for the debit card.

The short answer: Debit’s about half. Make sure yours is.

A Monthly Statement is Worthless (If I Can’t Read It…)

I apologize for my industry. A lot. A whole lot. In fact, more than Elvis ever shook his pelvis and much more than the Pope (il Papa to his friends) wears a funny hat.

This is because my industry being the Merchant Industry, or for the layman, the-ability-for-businesses-to-accept-credit-cards industry; does everything it can to confuse, confound, and make the average businessman or woman feel like they slept through the majority of all school. It uses lots of jargon, lots of numbers, and gives you the most amount of data all while purposefully avoiding all the information it can. You feel like you need a terminal math degree, or at least be a 3rd level wizard with a whole bag of moon sapphires to be able to decipher the Sanscrit statement that they send you each month. there’s a reason for this.

If you understood it, you would be more able to leave.

I have literally heard people describe it like taking a proverbial beating, but is OK with it because the next group might be worse. Really?! How about instead I teach you how to read it? This too is where you see how bad very competent and smart people feel when they can’t read something designed not to be read. Here’s what I have been told:

• “I don’t have four hours every month to sit down and try to do this.”
• “I don’t even read it anymore. I throw it in this box for later” (pronounced: NEVER).
• “They could make anything up and put on that thing.”
• “Our bookkeeper reads it” (No, they didn’t actually, I spoke to them. They copy two sets of numbers from it and file it).

Here’s the 30-Second Audit

You need two numbers from your statement. The Total Sales and the Fees Taken Out/ or the Total Fees. The names might be slightly different, but you get the point. Let’s say you have a Furniture store and you sold $20,000 in furniture last month and $650.00 was taken out in fees. Divide the Fees by the Total Sales, or in this case $650 by $20,000= 0.0325. To Make that a percentage, move the decimal two places to the right and you get 3.25% or a very upset retail business that should be much lower.

There is a caveat here: go through the whole statement and make sure those are the true totals. Many groups are getting craftier and when on the front page of the statement it says Total Fees: $161.13, later in the document you may find a couple of hundred more dollars. I know dear readers that sounds like an out right lie, but they can get away with it by saying that was their total fees, which was of course the smaller portion over and above the whole sale cost (interchange). Yes, it’s dirty pool.

Once again, for my industry, I apologize…