Prior to new Fed rules, as required under the Durbin Amendment of last year's financial-overhaul law, debit Interchange was priced based on numerous factors such as: signature or PIN; card present or not; transaction less than $15 or higher; supermarket or lodging and more. The new Fed regulated debit Interchange in effect since October 1^st forced the addition of a new rate to be determined by the size of the cardholder’s bank issuing the debit card. For small banks, with less than $10 billion in assets, the existing debit Interchange rates remained unchanged. However, for the largest banks issuing debit cards, with assets are over $10 billion, the new Fed regulated debit Interchange rate did have an impact on merchant processing costs in October.

Mega-merchants were expected to see the most savings from the new law because they were already on an Interchange pass-through pricing schedule. Yet this is not the case for the majority of small and mid-sized businesses and a well documented concern was that for these merchants, their experience would be much different. And so it was no surprise that according to a WSJ poll, 78% of respondents said NO when asked "Is your small business seeing savings as a result of the new law slashing fees for accepting debit card payments?"

Vantage Card Services, Inc. provides small and mid-sized businesses the same Interchange pricing structures as the nation’s largest merchants have negotiated and we passed through savings from the new regulated signature and PIN debit Interchange rates to our merchant clients. Based upon a Vantage analysis of October merchant statements, the majority of debit transactions (69%) were debit cards issued by regulated banks and subject to the new regulated debit Interchange rates. We found that 73% of Visa debit and 60% of MasterCard debit transactions qualified as regulated transactions with Visa accounting for 77% of all debit volume and 79% of all debit transactions. Of these Visa debit transactions only 9% were regulated prepaid transactions. The mass majority of Visa prepaid transactions were non-regulated.

In our analysis we calculated and compared the effective rate of Interchange in September 2011 to October 2011 when the new regulated rates went into effect. Card-Not-Present merchants including ecommerce, mail-order telephone-order (MOTO) and touch tone capture (TTC) merchants saved the most with an average of an 88 basis point (0.88%) reduction. Other merchant industry categories saved as well. Lodging merchants saved on average 84 basis points (0.84%), followed by emerging markets / public sector merchants at 71 basis points (0.71%), business to business at 67 basis points (0.67%), retail at 66 basis points (0.66%), restaurants at 52 basis points (0.52%) and supermarket at 48 basis points (0.48%).

Effective Interchange Rate Savings: September to October 2011 

Card-Not-Present	Rate		Retail	Rate
9/30/2011	1.58%		9/30/2011	1.36%
10/31/2011	0.70%		10/31/2011	0.70%
Savings	0.88%		Savings	0.66%
Lodging	Rate		Restaurant	Rate
9/30/2011	1.45%		9/30/2011	1.57%
10/31/2011	0.61%		10/31/2011	1.05%
Savings	0.84%		Savings	0.52%
Emerging Mkt / Public	Rate		Supermarket	Rate
9/30/2011	1.02%		9/30/2011	1.70%
10/31/2011	0.31%		10/31/2011	1.22%
Savings	0.71%		Savings	0.48%
Business-to-Business	Rate		QSR	Rate
9/30/2011	1.57%		9/30/2011	1.81%
10/31/2011	0.90%		10/31/2011	1.83%
Savings	0.67%		Savings	-0.02%

Vantage restaurant clients saved the most averaging $146/month each from reduced regulated debit Interchange. This is largely attributed to the fact of more debit cards being presented for payment. Card-Not-Present merchants say the greatest percentage savings due to the difference between the existing higher key-entered Interchange rates compared with the regulated rates that didn’t take method of acceptance into account, while the average size of the transaction had the most impact on the effective rate savings in face-to-face sales environments. The quick serve restaurant’s small transaction size made accepting regulated debit more expensive for them.

Overall, in October, the average signature and PIN regulated debit Interchange rate calculated to 61 basis points (0.61%). The effective Interchange in October for Visa regulated debit was about 42% lower than exempt non-regulated debit while MasterCard was nearly 37% lower.

Debit Card	Rate
Visa Total Non-Regulated Debit	1.51%
Visa Total Regulated Debit	0.63%
MasterCard Non-Regulated Debit	1.53%
MasterCard Regulated Debit	0.57%

Our PIN debit analysis revealed that unlike Visa and MasterCard where the majority of signature debit were regulated, only 39% of PIN transactions fell into the regulated Interchange categories. Regulated PIN debit also had the lowest effective rate calculation due to the higher average ticket for PIN transactions compared with signature debit.

Debit Card	Rate
PIN Debit Non-Regulated	1.03%
PIN Debit Regulated	0.35%

How did your current processor treat you? Are they passing through the regulated debit Interchange savings? As we've pointed out, payment processors are not required by law to pass these savings; and many processors have continued to define their own "qualified” and “non-qualified” pricing plans, thus keeping the regulated Interchange savings for themselves. As a result, many small business owners, who often struggle to figure out how to read their merchant statements, will be disappointed to learn that they are not getting to take advantage of the lower regulated debit rates.

About Vantage: Vantage Card Services provides merchants, businesses and banks with payment system consulting as well as credit and debit processing, merchant services and gift, loyalty, check, ACH and Visa payroll card services. We offer full-service consulting including comprehensive financial analysis of processing expenses and selection and implementation of the latest payment technologies. As a boutique firm with a solid reputation in the payment business since 1996, Vantage caters to clients that require value, expertise and personal attention. For an instant merchant Interchange rate quote please visit: MerchantRates.com.