Save on the Swipe

With the National Retail Federation reporting that "swipe fees cost merchants and their customers nearly $50 billion a year, triple the $16 billion a year collected in 2001," it's no question that businesses across the country are breathing a big sigh of relief.

That's because on Oct.1, the Federal Reserve Board reduced debit-card interchange as a result of the Durbin Amendment.

The fee, charged every time a consumer uses his debit card,was decreased from 44 to 21 cents per transaction, plus 0.05 percent of the volume transaction.

Interchange reform can mean significant cost savings for your business.

To reap the savings you're rightfully due, it's important to understand how the Durbin Amendment affects your business so you're not missing out on a nice chunk of change.
 

Card processing fees. The costs for card processing services may be among the three highest expenses your business incurs, perhaps outmatched only by labor and input costs. Total processing costs can be as high as 4 percent of the total sale for a single transaction, of which swipe fees (technically, interchange fees) compose a large part.

These fees, ranging anywhere between 1.5-2.5 percent, are imposed by the card brands every time a consumer uses his/her debit card.

Change, however, is on the horizon.

Resulting from provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve Board will ensure debit-swipe fees are "reasonable and proportional" to the cost of processing transactions.
 

Get in on the savings. While this legislation was intended to offer financial relief to businesses like you, it doesn't require that processors pass the fee reductions through. The industry encountered a similar situation in 2003 with the Wal-Mart settlement that lowered debit interchange rates by approximately one-third. Rather than pass the savings through to their merchants, many processors kept the savings to boost their own profits.

You can take action to ensure you get the savings you rightfully deserve. Start by following these tips:
 

Get it in writing. Ask for written confirmation from your processor that it will pass 100 percent of the Durbin rate decrease directly to your checking account.
 

Verify your model. There are two basic types of card processing pricing models.

Tiered pricing or discount rate models group together interchange fees and processor fees, making it difficult for business owners to determine who is charging what.

Alternatively, interchange-plus is a simplified model that passes interchange fees directly to the merchant and charges a separate fee for processing charges.

Contact your processor to ensure you are on an interchange-plus pricing model so you can clearly see if card brand fee reductions are truly being passed through to you, as this reform intends.
 

Evaluate your statement. Statements are often rife with hidden "junk" fees that offer you no added value and eat away at your bottom line.

Take advantage of this opportunity when you're evaluating your processing charges to better understand your statement and control your costs.

One useful tool is www.costofaburger.com, an educational site that offers a fictional monthly statement to use as a tutorial to better understand your card processing statement.

You can also check out the resources available at www.merchantbillofrights.org

If you know the facts and how to navigate around the potential pitfalls, interchange reform will surely be a boon to small business owners.

The author is president at Heartland Payment Systems.
For more information, visit www.HeartlandPaymentSystems.com and www.MerchantBillOfRights.org.