Durbin Amendment isn’t Helping US Retailers Much, Study Finds

Among the survey’s key findings was that 27% of US merchants said debit acceptance costs had actually increased for transactions of US$10 or less, while 47% reported no change, and 3% said they saw a decrease. The Richmond Fed was particularly surprised to see that the remaining 24% of respondents said they didn’t know what the impact had been. “That’s the question we’re asking – why didn’t they know?” said Scarlett Schwartz, a payments specialist for the Richmond Fed. “We want to dig into that a little bit more.”

Forty per cent of US merchants said their costs increased post-Durbin, while 48% reported no change to their costs and 4% said costs had decreased. Eight percent claimed they didn’t know.

Forty-one per cent said they did not change their debit/credit acceptance policy following passage of the Durbin Amendment, with just 23% introducing changes. The majority of merchants who changed their debit policy indicated that they have added acceptance for major personal identification number (PIN) debit cards and major signature cards.

Sixteen per cent of low-average transaction value (ATV) merchants and 26% of high ATV merchants said that sales below US$10 are simply not profitable due to the fees.

Mixed Results

Schwartz did note that there were US$15.4bn in debit interchange revenues in 2012, a 24.3% decrease from 2011. “We can’t say that that was attributable to the Durbin Amendment, but what we can say is that there was a big decrease and that’s a lot of money on the table,” she added.

However although retailers as a whole may have benefited from the Durbin Amendment, low ATV merchants are taking a loss. Prior to Durbin, transactions of US$15 or below generally had discounted debit interchange fees. “For a $2 ticket amount, pre-Durbin, the interchange fee was 7 cents. After Durbin, it was around 23 cents,” said Schwartz.

Schwartz stressed that the findings of the survey were preliminary. “We just got this data set weeks ago,” she said. “We feel like the analytics we are going to do are going to continue to evolve; they need to be a lot deeper. We wanted to just get some preliminary research.”

Despite the fees that merchants are incurring on low-ticket transactions, the majority of them appear unwilling to jeopardise their relationships with customers. The Richmond Fed expected to see low ATV merchants attempt to steer customers to different payment methods, such as cash or cheque. However, 92% of low-ATV merchants said they are unlikely to encourage customers to use a different payment method – likely because cards offer speedy transaction times and merchants are unwilling to inconvenience customers.

The Durbin Amendment also has not made a dent on consumer prices:

  • Eighty per cent of low-ATV merchants said they made no changes to pricing, while 20% said they increased prices.
  • Seventy-four per cent of high-ATV merchants made no changes to prices, while 24% increased prices and 2% decreased them.

“We asked [low-ATV] merchants about this in our meeting last week and again, their number one focus is the customer,” Schwartz said. “With competition very keen in the food service business, they weren’t willing to upset their customers by increasing prices.”

Ninety-one per cent of merchants said they have no plans to implement surcharges. Retailers in both the low and high-ATV groups again said they were not willing to upset their customers.

Lastly, retailers were asked if they charge cash-back fees for withdrawing money at the point-of-sale (PoS). Pre-Durbin, about 20% of low-ATV retailers said they charged cash-back fees but, post-Durbin, that number doubled.

Schwartz noted that further research and several whitepapers are planned. “Everything has an unintended consequence,” she noted. “The best policy in the world is not going to be good for somebody, and that’s what happened here.

“It was a good intention, a good idea, the thought was in the right place and the evaluation was sound. But there are factors you just can’t always anticipate when you’re trying to make a decision such as this.”


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