Posted by Sharon Robb on Wed, Jul 28, 2010 @ 11:20 AM
On July 21st 2010 President Obama signed into law, Barney Franks Restoring American Financial Stability Act of 2010. The purpose of the bill is to protect American consumers from abusive financial practices and create accountability and transparency in our financial systems. Some of the specifics of the Act can be read from the actual bill (link above) or Wikipedia already offers a solid outline on the regulatory agency's and issues - check it out.
Tucked neatly inside the bill is what interests us - the Durbin Amendment . In basic terms, the bill amendment gives the Federal Reserve final say on whether or not debit card interchange fees proposed by Visa and MasterCard are reasonable and proportional to the actual processing costs. It would also allow merchants to offer discounts for non-card purchases as well as the power to set minimum/maximum card purchase amounts. Not surprisingly the amendment was strongly supported by our largest retailers and merchant groups, claiming their lower costs would also benefit the consumers via a lower cost of goods.
Like the rest of the law - it will take time to clarify, study and then finally implement - and the federal government has a year to determine what reasonable and proportional is. Banks with assets under $10 billion are exempt from the regulation.
Advocates of the amendment often refer to all interchange as a "hidden tax", but interchange was introduced with credit cards and why is this cost of doing business different from the cost of utilities, shipping, and various overhead that we know from business 101 is incorporated into the cost of goods sold? A May 2010 article in the WSJ was the first I've read lambasting what we tend to forget - cards have been a coup for retailers and consumers. The consumer gets protection in the case of a bad purchase or return policy, rewards, efficient tracking and reporting on purchases, payment convenience and the retailer increases sales, reduces theft at the register, limits fraudulent checks, etc. There ARE benefits.
So what's going to happen? the fall out as it were? only time will tell but there are lots of opinions out there, some pro the regulation, some not so much.
No one knows for sure but here's what's being bandied about -
- Merchants - will set minimum purchase amounts for consumers to use cards, may offer cash discounts or charge a surcharge to use a credit card (that's gonna hurt), and will see lower processing costs for debit cards if the Fed's say current rates are too high. Will savings be passed along to the consumer/buyer - most guess no.
- Banks - have billions in revenue at stake that may be lost. If this happens chances are consumers will see an uptick in other fees - checking accounts, annual credit and even debit card fees, etc. Rewards programs could be eliminated. Banks are not non-profit entitys - if they lose money in one area - they will look to create it in others. The consumer will pay the price.
- Buyers/Consumers - may lose the ability to make low end purchases with a debit card (under $10? under $20?), will see an increase in overall banking fees, credit could get tighter if banks tighten reins because their capital base is squeezed, more limited payment options.
- Community Banks and Credit Unions - not included in the regulation if revenues are under $10 billion, were not pro its passage. They worry that merchants will find a way to not accept their cards at the POS because of the higher interchange costs and they will not be competitive in issuing debit cards - may lose customers.
Most surmise that the only group that will benefit of course, are merchants, whose cost of accepting debit cards will likely go down. We'll see.
In the meantime, we are in agreement with a recent June article by Kate Fitzgerald in ISO & Agent Weekly - an industry rag - where she quotes a report by the Mercator Advisory Group -
"The amendment "appears to largely view debit payments as though they were a 'public utility,' failing to recognize the substantial innovations and competition occurring in this area surrounding fraud and security needs, risk assessment, timely settlement, guaranteed payment, and other social benefits." Interchange represents the cost of a business to business transaction in an remarkably competitive market with rapid innovation. Who should determine this cost? Who determines your cost of goods? your services?
Whatever happens, we'll let you know....keep an eye on that bank account - associated costs may grow next year, and for gosh sakes carry cash... in some instances, it may become your only payment option. One step forward, two steps back?
Posted by Sharon Robb on Mon, Jan 11, 2010 @ 10:49 AM
The acceptance of debit cards is a vital requirement for merchant success.
Consider VISA's announcement in May of 2009 that for the first time in the company's history, the volume of debit payments surpassed that of credit cards. Recession news continues to bolster this trend - whether it is due to the diminished availability of credit or a wise consumer approach - all the card networks are reporting healthy growth.
Merchants accept debit cards one of two ways - online - requires a pin pad (PED - pin entry device) or offline (requires a customer signature). Unless the merchants primary sale or average ticket is less than $25 pin debit costs less than signature debit.
So let's talk pin pads which are an indisputable, worthwhile merchant investment given what you've just read.
Pin pads can be stand along devices - connected by cable directly to your credit card processing terminal and set up for easy customer access and interface or integrated within the credit card terminal itself. The debit card is swiped through the pin pad and a 4 digit pin is entered by the customer to authorize the transaction. The transaction is processed through the ACH processing network and the merchant is funded immediately.
Each pin pad has a unique encryption security code. When the pin is entered the pin pad encrypts the number at the point of sale through to the bank, for verification and payment.
Top pin based debit benefits -
- Reduced Processing Fees
- Fast settlement of funds
- Fewer chargebacks - PIN based debits are not subject to chargebacks
- Transactions cannot be downgraded - as they often are with credit card transactions that don't qualify for the best rates
If you already have a pin pad - you should be on alert that in July 2010 new VISA equipment compliance requirements will be in effect. Is your equipment up to date? See the PCI Security Standards website list if you're not sure - your PED must be an exact match with the specs on the site. If you have don't see your device listed, you have the wrong version or you have questions about whether your pin pad is meeting PCI DSS standards - don't wait until July - call XBS @800-347-1090.
PED security is a real issue. It doesn't take much imagination to grasp the value of cardholder data combined with a debit PIN - the information would give thieves the ability to drain a bank account. The technical savvy of today's criminal is mind boggling and apparently encryption cracking services and decoding ability has kept pace with security measures.
NOT ONLY does your POS PED need to be on the list - but VISA is further mandating an update of the PED with what's called TDES (triple data encryption standard)- a stronger, more robust encryption standard that serves to reduce further risk of theft of valuable cardholder data.
Many recently deployed integrated PED's are TDES capable but still must have the TDES keys injected. Older integrated PED's may not support the new standards and will have to be upgraded to more recent equipment, integrated or, possibly an external pin pad, with a TDES key injected prior to use/shipment.
Moral of the story? Secure, pin based debit can increase your revenues and cash flow.
- Start processing pin debit and lower your processing costs
- Ensure your current or new device meets all upcoming July 2010 VISA mandated security requirements and is PCI DSS compliant.
WIN WITH PIN!
(couldn't resist!)
Posted by Sharon Robb on Thu, Mar 26, 2009 @ 07:41 AM
Safe, Secure, Green AND Growing.
ACH Processing and Debit.
Both pin and/or signature based debit cards are powerful and cost effective customer payment options for the merchant. They are also processing methods where merchants often find themselves not benefiting from the lower costs due to outdated tiered pricing models or processing methods that don't capitalize on the option.
A few glossary definitions.
ACH - Automated Clearing House - the electronic network , regulated by NACHA- The Electronic Payments Association - for financial transactions including debit and credit in the United States. ACH processing uses include:
- Debit Card Transactions
- Business to Business (B2B) payments
- E-commerce payments (internet)
- As well as direct payroll deposit, tax and government payments, etc.
PIN Debit (online) - card is swiped at the point of sale and the customers PIN is entered and transmitted to process the transaction. Requires a pinpad at the POS.
Signature Debit (offline) - run as a credit card at POS, or via internet, phone etc. Does not require the pinpad and most businesses that accept credit cards can accept signature debit cards with the VISA or MasterCard logo on them.
BOTH signature and pin based debit process at substantially lower costs (interchange rates) than credit cards - (remember debit is not credit given your customer by the card issuing bank but a direct debit from the customers checking account) - but not all merchant account providers offer the reduced rate available for these cards.
A 2008 Study of Consumer Payment Preferences by BAI (Bank Administration Institute) and Hitachi Consulting shows debit payments now account for 37% of in store purchases (up from 21% in 1999). The study also shows -
- Pin based debit is favored over signature.
- Check use continues to decline as an in store payment preference from 18% in 1999 to just 8% in 2008.
- Bill payments - the "last bastion" of paper based payments and the only remaining stronghold for checks is slowly but surely grinding to a halt, dropping from 55% of all bill payments in 2005 to 38% in 2008. See our electronic invoicing product XBS PaySimple.
The message?
Merchants should continue to embrace alternative electronic payment options for their customers. Pin and signature based debit payment is the fastest growing electronic payment method in recent years and provides substantially lower processing costs than credit cards. Make sure your merchant account provider has passed along the debit card savings, use terminals and staff to prompt for pin based debit if at all possible (lowest cost usually UNLESS your average sales ticket is typically low) and use the ACH system for recurring billing... or just Call XBS - we'll set you straight.