Wherever you fall on the political spectrum, we can safely agree the newly-minted Trump Administration will take a pro-business stance on financial regulation. That stance will undoubtedly affect the payments industry and, by proxy, merchants can expect to see some changes on the horizon. So let’s take a look at what this might mean for merchants, from an apolitical perspective (if such a thing still exists, sad!).
Wherever you read about Trump and financial policy, The Dodd Frank Act of 2010 is front and center. Analysts are expecting one of the Act’s main provisions to hit the carving block, which directly affects merchants: the Durbin Amendment. Durbin dealt with payments processing networks; it caps the interchange fees merchants pay the issuing banks, and allows merchants to set minimum purchase amounts on those transactions.Proponents of Durbin felt that the interchange fees, or “swipe” fees that issuing banks charged were arbitrary. They claimed the fees disproportionately affected smaller merchants and cut too deep into profits on small-dollar purchases. Before Durbin, swipe fees hinged on the bargaining power of the merchants. Larger merchants like Home Depot could negotiate a better deal on fees than the local corner store. With Durbin, proponents claimed swipe fee caps would lower costs for smaller merchants and in turn, those savings would trickle down to the consumer.
Know the Rules!
Durbin opponents assert that the caps actually raised the swipe fees to many merchants. They claim that banks started charging the maximum amount across the board. If a merchant was paying fees below the cap before Durbin, their fees went up to the cap as a result. Issuing banks use the fees to cover the cost of fraud and assessed that cost themselves. Durbin took that out of the banks’ hands and tasked the Federal Reserve with setting the price to offset fraud.
The big issuing banks clearly do not like the Durbin Amendment; they see it as an arbitrary price control. Merchant sentiments are mixed, depending on which side of the interchange cap they were prior to Durbin. The benefits promised to consumers have been elusive; any savings in capped fees have not trickled down to prices, except in the most competitive sectors. Already, this issue is starting to get framed as the banks vs. the retailers, but merchants and consumers are scattered across both camps.
Changes to Dodd-Frank and Durbin are taking shape in the House under the nascent Financial CHOICE Act. Its sponsors are keen to remove Durbin, but it is too early to tell how it will play out. Will it be slash-and-burn? How much influence will lobby groups have over constituents? How unified is the current Republican majority, and how effective is the Democratic opposition?
Only time will tell. Until that time, merchants should understand how the Durbin rules affect their bottom line currently, and consider the outcomes and opportunities that any changes will create. It also will behoove merchants to follow developments in the Financial CHOICE Act and how they might affect business. Regardless of how the may chips fall, you can always benefit by staying informed so that those chips do not fall on top of you.