What Does the Durbin Amendment Mean For You?

What Does The Durbin Amendment Mean For You? What is the Durbin Amendment? 1-4% surcharge added for credit card usage credit card cartel credit card cartel 1-4% fee 1-4% fee $10 $10 $10 S0.20 $9.80" +$0.20 $10.20 $0.20 $10 consumer merchant consumer merchant consumer merchant Cash Transaction In a typical cash Credit Transaction Durbin Amendment transaction, the consumer pays $10 for goods and the merchant receives $10. In a credit card transaction, the consumer is charged $10 for goods, but the merchant only receives -$9.80. the credit card Under the Durbin Amendment, (i) most debit card swipe fees will be regulated to a lower rate, (ii) merchants will be allowed to apply a surcharge to purchases made with debit or credit cards. companies make -$0.20 from transaction fees. In both scenarios, the burden of the "swipe fee" is shifted away from the merchant. * debit inserchange regulation will not apply to cards issued by banks with assets under $10 bilion, to reloedable prepaid debit cards, or to government issued stored value cards 2 Why Are Merchants Upset? 160 billion transactions Electranie Checks and other paper 140 120 MERCHANTS LOSE MONEY TO FEES 100 27.4% Cash 80 60 Credit cards 40 $2.00 20 29.0%- Debit cards Regular credit card 1.50 2002 2007 2012 Signature-based debit card (projecti ) 1.00 Consumer payment PIN-based debit card methods 0.50 Source The Nison Report, via The New York Times MORE PEOPLE WILL USE DEBIT INSTEAD OF CASH 2009 (estimated) 1997 2001 2005 Average fees charged to small retailers by Visa (per $100 transaction) DEBIT ON THE RISE Source:Feceral Reserve Bank of Kansas City, via The New York Times Visa debit 40% 30 20 Visa credit MasterCard debit MasterCard credit American Express 10 2000 2004 2008 Share of cardholder spending at merchants Source: The Nison Report, via The Naw York Times 3 Will Consumers Benefit? 0.8% 140 0.7 120 Annual fees in Australia rose after regulation 0.6 100 0.5 Reward rates remain lower than in the US 80 0.4 60 0.3 40 0.2 20 0.1 Australia Canada UK US Australia US Average annual fee on credit cards Average credit card reward rate Source: NerdWallet.com Source: NerdWallet.com What if merchants lower prices? Despite changes, merchants are not likely to lower prices to compensate for the credit card surcharge. $ 3% OFFI WHY NOT? After Australia's central bank luxurious Sofitel chain to Motel SCENARIO 1: SCENARIO 2: allowed merchants to ignore card companies' rules banning here last February for credit surcharges, the practice has become the norm at Aussie retailers, restaurants and airlines. 6, introduced a 1.5 percent fee Merchants Keep Prices The Same Merchants Lower Prices By 2-3% card users. Credit card users end up with higher annual fees, lower rewards, AND higher prices. Credit card users end up with higher annual fees, lower rewards, AND the same prices. "It has aided our profit margins," said Michael Issenberg, Accor's chairman of the Asia and Pacific region, who added that the hotel chain had seen little consumer resistance. Cash users end up th the same prices. Cash users end up with 2-3% lower prices. Some companies have even figured out a way to make a profit. For instance, Accor, a global hotel giant with 11 brands ranging from the Merchants end up making more money. Merchants end up making the same amount of money. Source: The New York Times 4 Will Merchants Benefit? 81% say they would be less likely to shop at a store that applies a surcharge 57% would leave the store without making a purchase 19% No ditterence 34% Buy add'I items 57% Leave store 81% Not likely to shop ATM How likely are you to shop at a store that charges a 2% surcharge on credit card purchases? If you want to buy something <$10, but there's a $10 minimum, and you don't have enough cash? Souros: NerdWallet Survay Source: NerdWalet Survey Restaurant Spendings: Cash vs. Credit NYC Taxi Tips: Cash vs. Credit Diners spend 13.4 - 15.9% more at restaurants w/ card logo 10% 22% Source: Raghubir, NYU, and Srivestava, Universty of Marytand Tip on cash payment Tip on credit payment Source: The TLC Credit Card Logo Present No Credit Card Logo NYC taxi tips are more than double when riders pay by credit Even if revenue per customer increases, despite studies that suggest otherwise, small merchants may lose customers to those without a surcharge nerdwallet We do the homework for you.