Durbin Amendment to Accelerate Merchant Attrition? Or a New Price War?
August 24, 2011
The vast majority of commentary regarding the Durbin amendment has of course focused on the main purpose of the legislation: regulating the price of interchange on debit card payments. But one of the potential impacts of the law is one that could have the most drastic effect on merchant acquirers.
The pricing changes and network routing requirements resulting from Durbin will allow merchants to renegotiate contract terms with their acquirers, possibly allowing them to terminate existing contracts all together to seek more favorable terms elsewhere. In an industry that already faces challenges regarding customer attrition and mass churn, the scenario created by the change in federal law will likely add fuel to the fire.
It could also initiate a new price war, with the acquirers willing to pass on their “Durbin Dollars” retaining (or acquiring) the most merchants. As we’ve seen from Heartland Payment Systems (minters of the previous slogan) and others, some acquirers are choosing to forgo a potential debit interchange windfall and pass all savings along to the merchant at large. This makes good business sense from a particular philosophical perspective (and the counterpoint makes a great deal of sense too!), however the pass-through of interchange savings may be a business necessity sooner rather than later.
If the regulatory conditions allowing merchants to renegotiate contracts for better pricing result in greater-than-anticipated account attrition, or even the risk of losing merchants that are material to the acquirer’s portfolio is too great, the market could replay the race to the bottom that has been occurring for the past few years as market saturation has come home to roost.