Transcript Sales & Product Training

The Durbin Amendment: Basic Facts
and Short and Long Term Effects
Presenters:
Greg Cohen, President – Moneris Solutions, inc.
Barrie Van Brackle – a Partner at Manatt, Phelps & Phillips, LLP.
About Merchant Warehouse
•
•
•
•
Established in 1998
Over 80,000 merchants
170+ employees
Award winning:
– Three-time recipient of the Boston Business Journal
Pacesetter Award
– 100 Best’s 2010 Merchant Account Provider of the Year
– 2009 ETA ISO of the Year
Discussion Points
• What it is and what are the effective dates for
implementation
• What do we anticipate being resolved by the
regulations
• How it relates to the credit/debit card industry
• What are the short and long term effects for ISOs
and Acquirers
The “Durbin” Amendment
•
Title X of the Dodd Frank Act (full name is Consumer Financial Protection Act of
2010) is commonly referred to as the “Durbin” amendment as it was proposed by
Senator Dick Durbin, and became law in July, 2010. It requires the following:
– 1) The amount of any interchange transaction fee that an issuer may receive
or charge with respect to an electronic debit transaction shall be “reasonable
and proportional to the cost incurred by the issuer.” (this is an amendment to
the federal Electronic Fund Transfer Act).
– 2) The Federal Reserve Board is required to prescribe regulations within 9
months from the date of enactment of the Act (so or before April 22, 2011) to
establish “standards for assessing whether the amount of any interchange
transaction fee is reasonable and proportional to the cost incurred by the
issuer.”
Considerations in determining whether
interchange is “reasonable and proportional”
• The Federal Reserve Board is required to consider the similarity between
electronic debit transactions that are required within the Federal Reserve
bank system to clear at par.
– (the Fed shall take into consideration the costs incurred by an issuer
for its role in the authorization, clearance or settlement of a electronic
debit transaction AND
– may also consider other issuer-incurred costs that are “reasonably
necessary” to make allowances for fraud prevention. If, however,
those types of costs are considered, the issuers will actually have to
take steps to reduce fraud (i.e., actually prove that it incurs those
costs).
• Small issuers (those with assets of less than $10 billion are exempted from
the foregoing regulations.
Other Exemptions
• Interchange Transaction fees charged or received in
connection with a Federal, State of local governmentadministered payment program (in which a person may only
use a debit card or prepaid card) are exempted from the
“reasonable and proportional” requirement.
• Reloadable, general use prepaid cards (used either at
merchant locations, service providers or ATMs) are also not
covered.*
* Until July 2011 only. Then, the requirement that interchange
fees be “reasonable and proportional” applies if the issuer of
the prepaid card charges an overdraft fee or a fee for the 1st
withdrawal per month from an ATM that is part of its
network.
Durbin Regulates Network Fees
• The Durbin Act also requires the Federal Reserve
Board to prescribe regulations to ensure that a
network fee is not used to compensate an issuer
with respect to an electronic debit transaction (i.e.,
so none of the payment networks can add suspect
fees that are really disguises to make up for any
issuer-lost interchange).
The foregoing requirements go into effect as of July,
2011.
Durbin Prohibits Exclusivity Arrangements
• Neither an issuer or a payment card network can
restrict the number of payment card networks on
which a debit transaction may be processed.
(Effective 1 year after Act enactment)
• Neither an issue or a payment card network can limit
the ability of a merchant accepting debit cards to
direct the routing of the debit transactions. (Effective
1 year after Act enactment)
Immediate Effect of Durbin
• A payment card network cannot prohibit a merchant from
providing a discount for the use of cash, checks, debit or
credit cards (as long as such discount does not discriminate on
the basis of the issuer or the payment card network in the
case of debit or credit cards). All discounts must be clearly and
conspicuously disclosed and otherwise in compliance with
Federal and state law.
• A payment card network cannot prohibit a merchant from
setting a minimum dollar value for a credit card charge of $10
(this may increase over time), and any Federal agency or
university/college may set maximums for credit card
payments.
US Dept. of Justice lawsuit vs. Payment
Networks (impact on discounts)
• The US Department of Justice filed a lawsuit against Visa, MasterCard and
American Express in October, 2010, alleging that any card rules prohibiting
discounts were anti-competitive and cost merchants more to accept cards.
The case was settled by Visa and MasterCard on the day of filing (so that
merchants accepting these cards could encourage consumers to use less
costly methods of making purchases).
• Merchants can now: (i) offer an immediate discount for using a payment
card in the same network; (ii) express a preference for that type of
payment (or another form of payment, such as cash); (iii) promote a lower
cost network; and (iv) let consumers know how much it costs the
merchant to accept the particular payment type. BUT, the settlement
applies to merchants only taking Visa and MasterCard- the lawsuit with
American Express is still pending.
Legislation/Regulation
• Short Term
– Interchange
• Debit Rates
• Minimums
– Multiple Tiers
• Big Banks vs Small Banks
• Government Benefits & Prepaid
• Long Term
– Multiple Networks
• No more exclusivity
• Signature and/or/vs PIN
– Merchant Choice
• Routing Options
• Who & How
11
Interchange
•
•
July of 2011 Debit Interchange
“incremental costs” means LOWER
•
•
•
•
Flash Back – late 2003
over a 6 month period they reduced debit interchange by 30%
Large merchants benefited.
Acquirers took profits
1.5
1
0.5
0
-0.5
6/2/2003
8/2/2003
10/2/2003
12/2/2003
2/2/2004
GPY
•
•
4/2/2004
FDC
6/2/2004
8/2/2004
IPMT
Minimums – Is it real? Who will actually say NO?
Transaction Volume? Micro-Payments Innovation
10/2/2004
12/2/2004
Multiple Tiers
Technology Implementation
• New Interchange Tables based on BIN Numbers
• New Schemes at the Processors
Educating the Channel
– Merchant Education
• How do I recognize
• How do I reconcile
– Acquirer Education
• How do I sell
• How do I service
Logistics
– Statements
– Applications
– Re-pricing
– Call Centers
13
So…
Lots of work in a very short time
But Remember:
Merchants get charged DISCOUNT, not
Interchange
Creating an Interesting Opportunity
for Acquirers and ISOs
Multiple Networks
Options for the Fed:
•
Multiple Pin Debit Networks
– Status Quo
•
Multiple Signature Debit Networks
– Entirely New Schemes as they run on CREDIT rails
•
Will merchants want PIN? Price dependent?
– Price must be “reasonable and proportional”
– What is the difference between PIN and SIG?
•
If there is a big differentiator PIN could move outside of just Petrol, CStore, Grocery and Big Box
•
Does EMV come into play? It does virtually eliminate fraud – would
that further reduce price?
Merchant Routing Choice
•
•
Nationals
•
•
•
Mid Market
•
Small Business
•
Merchants will route based on cost.
Will develop solutions and connect
directly to networks that enable least cost
routing.
Merchants will route based on cost.
Will hire firms and purchase software that
enable least cost routing
Will look for acquirers/ISOs to consult.
How will the Networks incent the
merchants?
Acquirers & ISOs will route based on
profit.
– How will the Networks incent the
Acquirers/ISOs
Will hire firms and purchase software that
allow them to dictate routing internally or
remarket to merchants.
Long Term
Nothing Mandated:
MARKET FORCES WILL DETERMINE WHAT
HAPPENS ON THE ACQUIRING SIDE
•
•
•
•
Routing Software & Solutions
Hardware Opportunities
Creative Pricing
Network Dollars
Agent & ISO Program Benefits
•
•
•
•
•
•
•
•
The security of a financially sound ISO
Generous bonuses and benefits
Uniquely fair agent contract
Innovative technology
In-house/dedicated customer and technical support
Guaranteed lifetime residuals
Marketing support
In-depth sales training
Questions?
Greg Cohen
President, Moneris Solutions USA
[email protected]
Barrie B. VanBrackle, Partner
Manatt, Phelps & Phillips, LLP
[email protected]
If you are interested in becoming an independent sales agent
for Merchant Warehouse, please contact Doug Small @
617-896-5590 ext 2535 or [email protected]
Be sure check back to Merchant Warehouse University to
register for upcoming webinars and view our recordings!