We wrote a few posts previously about Dodd-Frank Financial Reform and how this will create Debit Interchange Regulation as early as 2011 and again in 2012, Durbin Amendment.  However, we have seen quite a few questions recently about the Regulated Debit vs Unregulated Debit (or Exempt as Visa refers to it) and prepaid cards, specifically: what the difference is between the two of these and how much do each of them cost?


Regulated Debit vs Unregulated Debit

This is actually the easiest part to understand but a little harder to determine how it will affect your processing costs. Regulated debit simply means that the bank issuing the consumer’s debit/prepaid card has over $10B in assets.

Regulated debit transactions have a maximum “interchange” cap as outlined in the Durbin Amendment, $0.22 plus 0.05% (in reality this is $0.21 + $0.01. Look for fine print and you will see most issuing banks qualify for an additional $0.01 for participation in the card network fraud program) Every penny counts! This applies to Card Present and Card Not Present transactions across the board, so that is super easy.

This dramatically lowered the fees that most acquiring banks made from debit cards.  This is interesting as the card networks did away with a lot of small ticket discount rates, which means some merchants that have less than $10/ticket sales actually now have higher fees than they did before. Why? Because the banks/networks upped the minimum fees to the maximum allowed by Durbin to minimize their lost revenue. The card networks have kept some programs for small ticket unregulated PIN debit and some other exemptions.

Great. so why so many questions about regulated debit vs unregulated debit? Shouldn’t almost all merchants be celebrating lower fees for accepting debit cards? 

The Catch – Regulated Debit at the ISO level

Regulated debit fees are outlined in the Durbin Amendment as interchange cost.  However, if ISOs sell a merchant on a pricing account that is tiered (or worse yet ERR), the ISO/processor pays interchange but can charge the merchant whatever has been negotiated in their contract. The US financial system is f’ed up, isn’t it?  Do yourself a favor and get Interchange Plus pricing ASAP. That is the fastest way to get the savings provided by regulated debit.


What are Interchange Fees for Unregulated Debit?

When it comes to unregulated debit (debit cards issued by banks with less than $10B in assets) it’s somewhat complicated. (Remember, Visa calls unregulated cards EXEMPT) Debit interchange fees vary by merchant category code, transaction size, and a few other less common variables. Some debit networks cap the maximum fee that a business pays, while many have no cap. These caps come from working agreements between large interest groups (like large volume grocery stores for example) that negotiate some caps with the card networks. The MasterCard interchange link below shows insight into this on page 3 if you look at the Tiers for each category.

Here are links to the latest Interchange rates for Mastercard, Visa, and American Express.

You can look at Visa rates and see how wide the spread is. For Utilities, it is a flat fee of 0% + $0.65 for unregulated all the way up to (page 6) and you see that Prepaid reimbursement interchange is 1.80% + $0.20 (with AFDs and service stations eligible for a US $0.95 cap.) This is for Exempt unregulated cards but regulated debit is capped at 0.05% + $0.22.  Oh and don’t forget about other costs like Visa’s Prepaid Load Network Interchange Reimbursement Fee or $0.05.  Now you see why the Durbin Amendment exists and why it was beneficial to most merchants. (really all except 7-11 and other small ticket businesses).


How do I get the best debit rates?

It takes some legwork and understanding each business use case (determines MCC), how big the merchant is, the type of card being used (regulated debit vs unregulated debit) and how the card was processed (CP or CNP) to determine what actual costs will be. Working with a knowledgeable, honest and ethical provider is the best thing you can do. They will most likely help businesses save a ton by:

  1. Recommend interchange plus pricing so your business can get savings from regulated debit rates
  2. Change the way you accept debit cards (PIN for example) to minimize interchange rates. Sometimes your business may have ended up with the wrong MCC code, which can make a huge difference in what you pay on unregulated debit AND credit interchange.
  3. If your business is growing substantially, you may be able to re-negotiate better rates.

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