Interchange Reform Is Here: Ensure Your Hotel Reaps the Rewards

By William Collins Executive Director Vertical Market Strategy, Heartland Payment Systems | December 18, 2011

Co-authored by Robert Baldwin, President, Heartland Payment Systems

The long-awaited implementation of the Durbin Amendment, which lowered debit interchange (“swipe”) fees, is finally a reality as the law went into effect on October 1, 2011. Swipe fees are imposed by the card brands (Visa®, MasterCard® and Discover® Network; American Express follows a different pricing model) that the issuing banks in turn collect from businesses every time a consumer uses his/her credit or debit card. Prior to October 1, those fees equaled to about 1.5 to 2.5 percent for each card-based purchase.

As most hotel operators are undoubtedly aware, payment processing costs are among one of the highest expenses they incur. The larger the transaction, the larger the processing cost. However, due to the swipe fee reform, every time a guest pays for their room, spa services, meals or other amenities with their debit card, the hotel should be seeing savings as a result of the fee reform.

What is Swipe Fee Reform?

In July 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the financial reform bill, that, among various other provisions, directed the Federal Reserve Board to ensure that debit-swipe fees are “reasonable and proportional” to the cost of processing transactions.

After much deliberation and almost one year later, on June 29, 2011, the Federal Reserve Board issued its final ruling to lower the cap on debit interchange fees to 21 cents per transaction, plus 0.05 percent of the volume of transaction, effective October 1, 2011. Although this is nearly double the Fed’s initial proposal of 12 cents, this is a significant reduction from the average of 44 cents that retailers currently pay per debit card purchase. The rules also state that issuers can charge an additional one cent if they comply with certain fraud protection policies and procedures.

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