Dodd-Frank reform raises small-transaction fees; NAMA seeks relief for operators
The National Automatic Merchandising Association warned that the Dodd-Frank financial reform legislation, specifically its new rules on debit card fees, will deliver a damaging blow to the vending industry. As a result, NAMA is calling on its membership to contact members of Congress about the legislation's negative impact on vending, announced Dan Mathews, the association's interim chief executive.
On Oct. 1, a cap on the fees banks can charge retailers every time customers swipe their debit cards went into effect. The new rules limit the amount banks will be able to get from merchants. Whereas banks used to charge an average fee of 44¢, they can now charge a maximum of only 21¢. However, this 45% drop in fees is expected to cost the banking industry billions of dollars and, as a result, consumers and merchants will now face new charges as banks try to recover losses.
"Although this will be beneficial for large-ticket transactions," Mathews said, "there is an adverse impact on the vending industry due to our typical small-ticket transactions. This new cap could as much as triple the net swipe fee for small transactions."
Gateway provider contracts vary from operator to operator, the NAMA chief pointed out, and therefore the impact of the new rules on rates will vary.
"Card companies and banks now have the option to charge up to 21¢ per transaction plus an additional 0.05% of the transaction to mitigate fraud losses and 1¢ for fraud protection," explained Mathews, who is urging vending operators to contact their cashless service providers to find out how the new rate caps will affect their businesses. "The situation is changing every day."
NAMA has recommended several steps for vending operators to take, including contacting their congressional representatives and senators to educate them on the adverse reaction the new fees will have on their businesses and customers, as well as their impact on jobs. The vending association also urged operators to ask their providers to negotiate directly with Visa and MasterCard on their behalf.
"We're looking at different options to see how we can lessen or eliminate the adverse impact of the new debit card swipe fee cap," Mathews said. This includes lobbying members of the House Committee on Small Business, mobilizing a grassroots effort to educate politicians about the unintended consequences of the debit card rule and using "action alerts" to provide NAMA members with appropriate talking points when speaking to elected officials.
Additionally, Mathews said that NAMA is "directly and indirectly" negotiating with Visa and MasterCard. Visa, the world's largest consumer-payment network, and No. 2 MasterCard are likely to increase their fees from 8¢ on a $2 purchase to 23¢. So if the average cashless transaction at a vending machine is $1.67, which one provider claims, then the cost of a transaction with a regulated debit card will rise by 247%. And vending machine payment-processors are highly dependent on debit cards.
The NAMA chief also said that he has had direct contact at "the highest levels" with Bank of Merchant Services, which is a partner in the vending association's Cashless Solutions program. The association asked BAMS to prepare a statement by mid-October that explains the exact impact of the new rates for vending, coffee service and foodservice. Check vending.org for updates.
Mathews points out that BAMS has not increased its fees to NAMA members, but is obligated to pass on increases from the issuing banks. BAMS is 49% owned by Bank of America, but operates as a separate business entity.
The new rates affecting small tickets are one attempt by Visa and Mastercard to shore up the interchange income of big debit card issuers now subject to price regulation by the Federal Reserve as a result of the Durbin Amendment in 2010's Dodd-Frank Act.
"Our members can be sure that we'll be taking every step possible to protect them from this heavy new burden imposed on them by this legislation," Mathews said. "We'll be in touch to ensure our members are up to date, but be sure to check our new link we're developing on the NAMA website for more up-to-date information."
USA Technologies, one of the largest providers of cashless vending services, told Vending Times that it, too, is working to mitigate the impact of the new rate structure on small-ticket transactions. "We are taking a number of steps to resolve the issue as soon as possible and our goal is to minimize or eliminate the impact to our customers," said USAT chief financial officer David DeMedio. "We're optimistic that the card associations will recognize that it's not economical to accept a 21¢ fee for small-ticket transactions, especially in vending where it has the greatest impact as a percentage of the sale."
He emphasized that cashless vending transactions have grown exponentially over the past several years -- with USAT reporting 80% year-over-year growth -- and credited Visa and Mastercard for playing an active role in fostering that growth. "They can see that these new rates fly in the face of what they've been trying to push," he said. "Part of Visa and Mastercard's mantras is to be able to be used as part of cardholders' everyday lives. You can't get closer to that than vending, especially if it's in your place of work."
The best longer-term outcome in USAT's view would be an interchange rate established specifically for vending, according to DeMedio. "It's not something that we expect to see immediately, but it's something we hope will pop up as the number of transactions processed continues to climb," he said.
The Malvern, PA-based company reportedly connects 119,000 vending machines and other unattended locations, with more than 1,000 clients that accept credit and debit card payments wirelessly through its ePort card readers and related technology. It processes $175 million annually, and that volume continues to climb.
Apriva, another leading processor of vending transactions and telemetry, said it is in discussions with credit card companies and financial institutions in the hopes of easing the financial impact the new debit card fees will have on small-ticket transactions.
"The implementation of new debit card transaction fees by various payments companies as a result of the Durbin Amendment has caused an understandable amount of anxiety and confusion among vending operators who, by and large, serve a market which is dominated by consumers who choose to pay by debit card," said Rinaldo Spinella, executive vice-president for unattended payments at Scottsdale, AZ-based Apriva.
He pointed out that some relief, albeit temporary, is currently available to the industry through the "Visa Incentive Program, "which Apriva offers in conjunction with the company's Apriva Vend cashless solution. Operators who sign on for the program benefit from reduced debit and credit card fees, and a hardware discount, by installing readers on their machines that accept contactless cards. Both "tap and go" transactions and magnetic-stripe card swipes, from Visa and other card brands, qualify for the price break.
The program, launched in 2009 and renewed annually, is set to expire at the end of 2011, which means participating merchants are locked into the same competitive interchange rates through at least the end of the year. Visa has not yet said if it will extend the program into 2012, but Apriva says it is in talks with the card company to preserve the incentive.
The goal of the Visa Incentive Program, Spinella explained, is to accelerate the transition away from the traditional magnetic-stripe card, which credit card companies are aiming eliminate completely within the next few years.
In the long term, one step vending operators may be forced to take should the new rate structure remain is to reconsider whether to continue accepting debit cards at their machines.
"Financial institutions set a program and it's up to merchants to figure out what is best for them, whether it's cash, cash and credit or cash, credit and debit," Spinella observed.
USAT's DeMedio observed that the company is seeing a pronounced push from issuing banks to encourage cardholders to use credit cards -- which are untouched by the Durbin Amendment -- rather than debit cards as a means of recovering lost revenue.
In related Durbin Amendment news, payment processing giant Heartland Payment Systems Inc. said that from Oct. 1 to Oct. 3 it had passed on $1.78 million in interchange savings to its merchants. The Princeton, NJ-based company acknowledged, however, that while the majority of merchants are realizing significant savings from the debit rate reductions, those that process a high volume of small-ticket transactions are actually paying more due to the elimination of Mastercard and Visa's small-ticket interchange rates.