Debit card volume has grown exponentially in recent years. Merchants and consumers both appreciate the ease and speed of debit transactions. However, there is a dark side to debit cards, too. Merchants feel "dinged" by the high discount rate and consumers feel "dinged" by banking practices that trigger expensive overdraft charges. Now, recent legislation is shifting the tide and the debit card industry is getting dinged in return.
For consumers (that's you), a recent change in rules by the Federal Reserve amends the board's Regulation E to eliminate automatic enrollment in overdraft protection services. You must now explicitly opt-in to this controversial banking service. You have a choice: do you want overdraft protection and the fees that go with it, or do you want your debit card payments declined at the time of purchase? After all, debit is not credit.
For merchants (that's you at your day job), the newly signed Dodd-Frank Act dictates that the Federal Reserve regulate interchange rates (discount fees) for debit card transactions. Merchants have long considered debit card merchant rates too high for transactions in which the card issuers have no credit risk. After all, debit is not credit.
For years now, the TouchNet team has advocated that you "know your debits." We have focused on two main recommendations to take advantage of lower debit fees:
- Unbundle debit card processing fees from credit cards; avoid a blended rate.
- Negotiate your debit card fees on a "cost plus interchange" formula.
I always say "the trend is your friend." Today, it looks like the trend in debit is getting even friendlier to consumers and merchants.
Thanks for reading.