Recent changes in the payment processing industry will significantly impact — both positively and negatively — the acceptance of credit and debit cards. Car rental companies take notice.
These changes include a government regulatory program limiting charges by banks that issue debit cards. Another change includes an Internal Revenue Service (IRS) program requiring merchant account providers and merchant processors to report merchants’ total annual card volume to the IRS.
In addition to federal mandates, the payment card industry is sorting through the various ways to introduce and support smart (chip) cards and mobile payments in the United States. Smart cards are embedded with integrated circuits that use electrical connectors to transmit data to a merchant’s point-of-sale system.
If all this is not enough to make you dizzy, keep in mind that all the players participating in the electronic payments space — issuers, cardholders, merchant acquirers/processors, software providers and merchants — continue to be under attack by sophisticated hackers using advanced malware.
Durbin Amendment Lowers Fees
Under the new federal regulation stemming from the Durbin Amendment, as of Oct. 1, 2011, banks that issue credit cards are prohibited from charging or receiving an electronic debit (both signature and PIN) interchange fee greater than 21 cents plus 5 basis points (.0005%) times the amount of the transaction (see sidebar).
Previous to Durbin, fees varied by card used, type of debit routing and other factors. In a common example of a swiped Visa check card at a retail location, fees were as high as $2.10 on a $200 purchase, compared to the post-Durbin fee of $0.31. It’s easy to see how these new fee limits can put money back into car rental companies’ pockets.
However, due to the potential liability associated with debit card transactions, many car rental companies impose restrictions on the use of debit cards. As such, many car rental companies will not reap the benefits from these savings.
In the example of a $200 transaction that costs a merchant $0.31 in debit interchange fees post-Durbin, the same transaction would cost the merchant more than $4 if processed with a credit card. Is it time for some car rental companies to re-examine the no-debit policy?