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CoverStory

Debit interchange is another hot button topic
The battle over interchange Debit interchange was also in the news this year. The De-

has been going on for decades, partment of Justice filed a lawsuit alleging that Visa mo-
nopolizes the debit card business in violation of federal
with retailers filing numerous antitrust laws. The lawsuit also contains allegations that
lawsuits alleging they are being Visa has entered into agreements hindering the expansion
of competing networks into the field, and that it also has
overcharged, among other blocked technology companies from entering the market.

anti-trust grievances. The Federal Reserve, which has authority under the
Durbin Amendment to set debit card interchange, late last
year proposed lowering the cap substantially, and this
The battle over interchange has been going on for decades, year found itself sifting through a barrage of comments
with retailers filing numerous lawsuits alleging they are opposing the move, and legislative proposals that it hit the
being overcharged, among other anti-trust grievances. pause button.
The latest of these seemed about to be settled, with the
card companies agreeing to lower the fees by $30 billion The Fed also took a hit from the U.S. Supreme Court, which
over five years, but the plan was scuttled by a federal dis- ruled in favor of a North Dakota merchant challenge to the
trict court judge. The parties were ordered back to the ne- debit card cap. The merchant that sued wasn't even open
gotiating table, lest the matter be settled by the court. for business when the cap was instituted, leading lower
courts to dismiss the case. But in July the High Court took
Differential pricing gains favor issue with those rulings and let the case go ahead.

Surcharging, cash discounting and dual pricing are all Consumer preferences are key
the different ways ISOs and their merchant sales partners
are conjuring to move the sales conversation away from The debate over debit interchange takes on added impor-
cost. That's because instead of merchants, under these tance in view of the fact that debit cards more than ever
schemes consumers cover the cost of processing. are a go-to for consumers. An analysis by Wallet Hub, for
example, found that among Americans between the ages
The Durbin Amendment opened the door to these forms of 25 and 54, debit cards are preferred over credit cards, 35
of differential pricing, which made it clear that merchants percent compared to 33 percent.
are entitled to steer consumers to less expensive payment
methods, such as cash instead of cards. Several years later, A report this year from J.D. Power, meanwhile, revealed
the Supreme Court ruled that card brand bans on sur- that debit cards increasingly are being used in digital wal-
charging violated merchants' free speech rights. lets, and once added are the most used payment option.
Also, among consumers polled, 78 percent use their debit
While there have been state laws banning surcharging, cards at the POS through various methods – for example,
most of those have been dropped. Only two states current- plastic cards as well as digital/mobile wallets.
ly prohibit surcharging: Connecticut and Massachusetts.
The only caveat in the other 48 states is that surcharges The shift toward digital wallets, the firm noted, has much
are not permitted on debit cards, although signature debit to do with the enhanced security features the wallets offer,
cards are often treated as though they are credit cards. such as facial recognition and thumbprint ID technology.

There are some rules around surcharging. For example, Speaking of digital wallets, anyone who has been watch-
Visa rules limit surcharges to 3 percent. Even with the ing television this holiday season is aware that PayPal
Visa cap, most agents say that surcharging leads to higher is making a full-court press to be a payment method of
residuals – some say they are earning 160 basis points (1.6 choice at brick-and-mortar establishments.
percent), or more, per transaction.
While PayPal has long held a dominant position in online
For its part, Visa has deployed an army of "secret shoppers" purchases, and peer-to-peer payments via Venmo, it has
to identify merchants with differential pricing schemes never made much of an impression for in-person transac-
that do not comport with its rules (such as displaying cash tions. The company is out to change that, with features
and card prices side-by-side). like an enhanced rewards program and the ability to load
PayPal debit cards onto Apple Wallets to allow for tap-to-
An Arizona ISO, MiCamp Solutions, discovered this the pay.
hard way. It was fined by Visa to the tune of $70,000 earlier
this year for a merchant client that didn't properly follow Mobile wallets have been gaining popularity steadily,
the rules. with the big-name brands gaining most; merchant-brand-
ed apps seem to lag. The advisory firm Auriemma Group

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