Small stores which make a large number of small debit card sales between $5 and $10 are not exactly reveling in the results of the cap on debit card interchange fees. The majority of retailers are seeing a reduction in the costs of debit card processing thanks to the new Federal regulations, but for those merchants who rely on small dollar purchases, they are actually experiencing an increase in processing costs.
In response to federal rules capping debit card interchange fees the major credit card networks have eliminated discounts for merchants on smaller purchases and have set all rates at the highest allowable rate. Prior to the cap, merchants could expect to pay 6 or 7 cents on small purchases under $15.
However, merchants are now expected to pay almost treble that amount with most being charged the maximum allowable interchange fee of 21 cents to 24 cents. Senior vice president of the National Retail Federation (NRF), Mallory Duncan said,
That’s a dramatic increase on a bag of fries! They’ve greatly increased the cost of the transaction, and that’s causing a number of small ticket merchants to reconsider their decision to take debit cards.
The NRF believe that among the hardest hit will be ‘grab and go’ restaurants.
Small store owners are now figuring out how they will move forward and bring their costs back under control. For some stores this may well mean that they make the decision to stop accepting debit card payments all together, especially for merchants who have based their entire business around small dollar sales. Visa and MasterCard rules prohibited merchants from setting minimum purchase requirements for debit card transactions in the past, but as of 1 October, the Durbin amendment has provided merchants with the opportunity to apply a minimum spend to debit card purchases in order to reduce the cost of their debit card processing.
The new rulings came into effect at the start of October, but as yet it is too early to say for sure what the impact has been as it will take a few months for merchants to be able to properly assess how the changes have affect their earnings. Jeff Lenard of the National Association of Convenience Stores said,
Bottom line is that retailers will take a hit on these small-ticket items and the credit card companies will laugh all the way to the bank, literally.