The vast majority of commentary regarding theDurbin amendment has of course focused on the main purpose of thelegislation: regulating the price of interchange on debit cardpayments. But one of the potential impacts of the law is one thatcould have the most drastic effect on merchant acquirers.
The pricing changes and network routing requirements resulting fromDurbin will allow merchants to renegotiate contract terms withtheir acquirers, possibly allowing them to terminate existingcontracts all together to seek more favorable terms elsewhere. Inan industry that already faces challenges regarding customerattrition and mass churn, the scenario created by the change infederal law will likely add fuel to the fire.
It could also initiate a new price war, with the acquirers willingto pass on their “Durbin Dollars” retaining (or acquiring) the mostmerchants. As we’ve seen from Heartland Payment Systems (minters ofthe previous slogan) and others, some acquirers are choosing toforgo a potential debit interchange windfall and pass all savingsalong to the merchant at large. This makes good business sense froma particular philosophical perspective (and the counterpoint makesa great deal of sense too!), however the pass-through ofinterchange savings may be a business necessity sooner rather thanlater.
If the regulatory conditions allowing merchants to renegotiatecontracts for better pricing result in greater-than-anticipatedaccount attrition, or even the risk of losing merchants that arematerial to the acquirer’s portfolio is too great, the market couldreplay the race to the bottom that has been occurring for the pastfew years as market saturation has come home to roost.