Durbin Amendment posing challenges for merchants

New interchange fee laws could impact online merchants' bottom line

Brick-and-mortar and online merchants alike have voiced their distaste for a new law set to take effect this week, which may result in significant increases in credit card processing fees.

On October 1, the Durbin Amendment – a provision of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – will go into effect. The critical component to the new provision is that it will decrease the amount of income banks receive from interchange fees – revenue earned through credit card swipes. Prior to the amendment, banks were paid 44 cents per $10 transaction. Now, they will only receive 22 cents per $10.

With less revenue going to banks, it's expected they will increase their costs in other areas. In addition, a report from Bloomberg said Visa and Mastercard would charge the highest interchange fees legally allowed in order to make up for potential losses.

That could harm small businesses that process a high volume of swipe-fee transactions, such as local coffee shops. And while e-commerce businesses that accept credit cards online don't handle physical card swipes, they could also see their processing fees rise indirectly as payment networks look to deal with the law's broader impact.

“Merchants who accept cards over the phone or the internet will see zero rate reductions and huge fee increases on their merchant statements,” said Robert Livingstone, a merchant advocate.

As a result, it will be important for e-commerce businesses to work closely with their merchant account manager in the weeks ahead to understand the law's indirect effect on them. A payment processor with affordable transaction fees may be an attractive option for internet retailers looking to save money.