Last week, we discussed card payment minimum requirements for merchant credit card processing and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This brought about changes in the American financial regulatory environment that a affect nearly all of the nation’s financial services. Another FAQ we receive at Payline is in regards to regulated debit and unregulated (or “exempt”, according to Visa terminology) debit and prepaid cards; more specifically, merchants wonder: what are the differences between the two types of debit and what is the cost for each? We break it down for you below.
Regulated Debit and Unregulated Debit Explained
Regulated and unregulated debit are fairly simple to understand, but what’s not as easy to understand is how it will affect your merchant credit card processing costs. Regulated debit means that the bank issuing the consumer’s debit or prepaid card has over $10 billion in assets. These transactions have a maximum interchange cap as outlined in the Durbin amendment, $0.22 plus 0.05% (which really comes to about $0.21 + $0.01 – most issuing banks qualify for an additional $0.01 for participation in the card network fraud program). This applies to both card-present and card-not-present transactions.
This has dramatically lowered the fees that most acquiring banks make from debit cards. Card networks have done away with a lot of small ticket discount rates, which means some merchants that have less than $10/ticket in sales may experience higher fees. This is because the banks and networks have raised the minimum fees to the maximum allowed by Durbin to minimize their lost revenue.
As for unregulated debit (debit cards issued by banks with less than $10 billion in assets), things are a little more complicated (remember, Visa refers to as unregulated cards as “exempt”). Debit interchange fees vary by merchant category code, transaction size, and a few other variables. Some debit networks cap the maximum fee that a business pays while many have no cap when it comes to merchant credit card processing. These caps are determined by agreements between large-interest groups (for example large volume grocery merchants) that can negotiate some caps with card networks. The Mastercard interchange rate provides some insight if you consider the tiers for each category.
The Durbin Amendment exists for the benefit of most merchants but can be difficult to work with for small-ticket businesses involved in merchant credit card processing.
A little legwork is required to understand each business use case to determine the best debit card rates, like the size of the merchant, the type of card being used, and how the card was processed (CP or CNP). Working with a knowledgeable, honest, and ethical processor to provide you with merchant credit card processing can help your business save money by:
- recommending interchange plus pricing
- changing the way you accept credit and debit cards to minimize your rates, and
- working with you to get the best rate if your business is growing substantially.
Looking for a best-fit solution for your business? Reach out to Payline today to get started accepting debit cards efficiently and affordably.