Reform Comes to Swipe Fees

Reform Comes to Swipe Fees

Starting this month, the rules change regarding what you pay for credit card processing.

October 10, 2011
Robert Baldwin

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, come Oct. 1, 2011, retailers across the country will breathe a big sigh of relief when the Federal Reserve Board reduces debit-card interchange as a result of the Durbin Amendment. The fee, charged every time a consumer uses his/her debit card, will be decreased 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 and Durbin. The costs for card processing services may be among the three highest expenses your business incurs, perhaps outmatched only by labor and merchandise costs. Total processing costs can be as high as four 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 to 2.5 percent, are imposed by the card brands (Visa, MasterCard and Discover Network; American Express follows a different pricing model) every time a consumer uses his/her credit or debit card.

Change, however, is on the horizon. Resulting from provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly known as the financial reform bill), the Federal Reserve Board will ensure debit-swipe fees are "reasonable and proportional" to the cost of processing transactions. Next month, debit interchange fees will be slashed to the amounts noted previously—a significant reduction from the current average of 44 cents.

Get in on the savings. While this legislation was intended to offer financial relief to retailers, 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 now to ensure you get 100 percent of the savings you rightfully deserve. Start by following these tips:

1. Know the implications of the reform. There are more than 300 pages of rules about the implementation of the Durbin Amendment. Garden retailers need to know how the legislation affects your industry. Take the time to fully understand the information in this article, and, if you're interested, you can also get more useful information online and from industry associations, such as the National Retail Federation.

2. Get your processor's guarantee 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 starting the first day the legislation is implemented.

3. Verify that you are on interchange-plus pricing 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 fee reductions are truly being passed through to you as this reform intends.

4. Check the terms and conditions of your processing contract. Review your processing agreement to determine if you can terminate your contract if, after Oct. 1, you find you are not being credited with the full interchange-rate reduction.

5. Evaluate your statement to help control other processing costs. 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, 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

If you know the facts and how to navigate potential pitfalls, interchange reform will surely be a boon to independent garden center retailers like you. Take the time now to get swipe-fee savvy, and you will be well prepared come October to reap the financial benefits interchange reform offers.


Robert Baldwin is president at Heartland Payment Systems,