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Durbin Debit Dynamics TouchNet LIVE! Confidential COHEAO Annual Conference 2012 Durbin Debit Dynamics John McElroy, Business Development TouchNet Wall Street Reform and Consumer Protection Act of 2010 [ Dodd-Frank Act] • 533 new regulations • 60 studies Senator Richard Durbin (D-IL) • 94 reports The “Durbin Amendment” Where the Money Goes Sources: GAO (analysis); Art Explosion (images). (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 1 TouchNet LIVE! Confidential Discount vs. Interchange Issuer’s Cost Your Bank & Processor 87% Card Issuing BkBank 44%* Visa and Mastercard REWARDS National Retailers Association estimates it cost the average American Family $427 per/year in higher retail prices * http://www.bos.frb.org/economic/ppdp/2010/ppdp1003.pdf Durbin’s Primary Issues High Fees (1.4%) Rewards (44%) Inflated Retail Prices Monopolies forming Senator Richard Durbin (D-IL) What Monopoly? Debit = PIN Debit Credit = Signature Debit Issuers “Banks” Interlink & Maestro NO CAP $$$ • Rewards! • Lower Fees • No PIN Required • Less Risk w/PIN • No Added Txn Fee • Fewer Chargebacks $.50 • Zero Liability CAP 1.4% Merchants Consumer “Schools” s “Students ” (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 2 TouchNet LIVE! Confidential Who’s Regulated and Who’s Not? Fed Regulated DEBIT INTERCHANGE Durbin Amendment Key Components (for Merchants) 1. FRB to regulate debit interchange 2. Issuers must provide access to 2 unaffiliated debit networks 3. Merchants have the right to route transactions 4. Discount for “cash-like” payments 5. Min / Max for credit cards 1. Debit Card Interchange Regulation 21 cents for allowable costs 1 cent for fraud prevention 5 basis points ad valorem 5 cents per $100 Effective October 1, 2011 (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 3 TouchNet LIVE! Confidential Interchange Examples $1,000 Tuition Transaction Before After Interchange for card issuer (1.2%) $12.00 $ .72 Card processor fees (20 bps) $2. 00 $2. 00 Total discount fees $14.00 $2.72 2. Merchant Routing Rights Merchants have the right to route transactions to the network of least cost Taking the routing issue out of the hands of consumers Merchant X Interlink & Maestro X 3. Minimum of Two Unaffiliated Networks All cards issued, from this point forward, must have two unaffiliated networks Provides choice and ppprevents monopolies Front Back (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 4 TouchNet LIVE! Confidential 4. Discount for Cash Allows merchants to discount for cash-like payments Cash-like payments may ildinclude: Signature and PIN Debit ACH Checks Cash Student ID Cards 5. Min/Max for Credit Cards Credit Card – Minimum $10.00 (set by FRB) Credit Card – Maximum Government Higher Education? Just take the Banana! Exceptions : Cards issued by exempt banks Less than $10 billion in assets Over 15,000 banks and credit unions exempt touchnet.com/durbin Refund Cards? (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 5 TouchNet LIVE! Confidential Government-Administered Prepaid and Debit Cards Direct Express U.S. Debit Cards Navy/Marine Cash Cards Bottom line - Covered vs. Exempt About 40% of debit cards are exempt, but that number is growing What does this mean… Visa Credit vs. Debit Trends 25.0% 20.0% 15.0% 10.0% 5.0% Credit Debit 0.0% 1Q2007 3Q2007 1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 -5.0% -10.0% -15.0% -20.0% Source: Visa's quarterly reports on their US-only payment volume (dollars, not transactions). (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 6 TouchNet LIVE! Confidential Unintended Consequences For Consumers Free checking will be harder to find Debit rewards will diminish Possible debit transaction fees Unintended Consequences For Merchants New monthly account fees Limited debit processing options Merchant Service Providers Micropayments (vending machines) Higher credit card interchange Increased credit card usage Credit Cards on Campus Half of undergraduates have 4 or more credit cards Twenty-one percent of college students have between $3000 and $7000 in credit card debt Half of seniors graduate with debt of over $4100 Only 17% of students pay off the entire credit card balances each month Source: Sallie Mae 2008 Study (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 7 TouchNet LIVE! Confidential What are students buying with Credit? Source: Sallie Mae 2008 Study The Convenience Fee Strategy A fee applied to a payment method to help offset the cost of processing 25% of schools using a convenience fee 99% of these merchant accepp,t MasterCard, Discover, and Amex only. Payment Mix and Convenience Fees 15% 15% Credit ACH Debit 85% 85% Before After (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 8 TouchNet LIVE! Confidential Convenience Fee Compliance Flat Fee XX XX Tiered (Scale) XXX Percentage X X X Required for all XX* Pmt Types Permitted in 3rd XXX Party Services Allows In-line X* X Payments * MasterCard current program is making an exception for this. Certain restrictions apply. To Fee or Not to Fee? To Fee (the good) Not to Fee (the ugly) Save BIG money Credit is growing Save students from Credit interchange is credit woes riiising To Fee (the bad) No Visa Backlash Challenge for Internationals Case Study: 6-Year Review Total Trans. Total Dollars % of % of Avg. Dollar Pmts Dollars Per/Trans. CC 36,290 $51,553,766.41 16% 9% $1,420.61 ACH 194,364 $513,968,684.63 84% 91% $2,617.71 $565,522,451.04 $565,522,451.04 X 2.2% (85% of total pmts) = $10,575,269 $1,762,544.83 cost savings per year (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 9 TouchNet LIVE! Confidential 6-Year Case Study – Payment Trend $120,000,000.00 $100,000,000.00 2004 $80,000,000.00 2005 2006 $60, 000, 000. 00 2007 $40,000,000.00 2008 2009 $20,000,000.00 2010 $0.00 ACH CC The Visa Factor 100’s of schools have eliminated VISA credit “Non-event” But now you can bring VISA back, for Debit… What about International Students? Options for International Students Alternative Channel (i.e. phone) UnionPay (largest credit card in the worlrd) and JCB Wire Transfers (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 10 TouchNet LIVE! Confidential States with “Surcharge” Statutes State Statute California CA CIVIL § 1748.1 Colorado CO ST § 5-2-212 Connecticut CT ST § 42-133ff Florida FL ST § 501.0117 Kansas KS ST § 16a-2-403 Maine ME ST T 9-A § 8-303 Massachusetts MA ST 140D § 28A New York NY GEN BUS § 518 Oklahoma OK ST T 14A § 2-417 and OK ST T 14A § 2-211 Texas TX FIN § 339.001 Are Convenience Fees Right for Your Campus? Payment Strategy for Merchants Contact Your Merchant Service Provider Unbundle debit from credit in agreements Ask for “Cost Plus” pricing Keep low $$$ payments in mind Leverage Campus Cards (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 11 TouchNet LIVE! Confidential Debit Strategy for Payment Apps Contact Campus Commerce Provider Make sure you can take advantage of intelligent routing at the payment application level RtRoute to ACH Route to Campus Cards Route to PIN/PINless Debit Durbin Debit Summary Push PIN and PINless, as the exempt numbers continue to grow Plan for an increase in credit card usage Re-consider using a Convenience Fees Strategy as a deterrent to Credit, thus boosting ACH and Debit Thank You! TouchNet John McElroy [email protected] 913.599.6699 (c) 2011 TouchNet Information Systems, Inc. All rights reserved. 12.
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