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The Durbin Amendment may be best known for its stringent ceiling on debit card interchange, but merchants are discovering that another part of the law that requires transaction-routing choices can be just as effective as rate caps in controlling processing costs.
Giant Eagle Inc., a Pittsburgh-based supermarket chain operating nearly 400 stores in the Eastern United States, started out 18 months ago with a goal of stemming its rising transaction costs as a percentage of sales and then keeping them flat. It ended up not just flattening out its costs, but reducing them, according to Katie Scholl, the executive who worked on the team assigned to bring the chain’s processing expense under control.
The company’s weapon of choice? The Durbin Amendment’s transaction-routing rule, which took effect in April 2012, about a year before Scholl and her group began their work. “We decided to extract more benefit out of the Durbin Amendment by optimizing our PIN-debit transactions,” Scholl told the audience during a session at the Money2020 trade show this week in Las Vegas. “We put very basic routing rules in place according to the least-expensive [network choice].”
Working with its processor, Cincinnati-based Vantiv, the chain implemented new routing logic for PIN debit that automated the network decision for each card presented by customers. “We said, ‘Now that there’s two bugs on the back of every card, let’s pick the least expensive one,’” said Scholl. She did not reveal Giant Eagle’s actual processing costs, nor did she say what percentage of overall transactions PIN debit accounts for.
The Durbin routing provision, which requires that merchants have a choice of at least two unrelated networks for processing each debit transaction, was designed to create a way for merchants to exercise least-cost routing. But, as Giant Eagle found, it also set up an atmosphere of negotiation that also drove down the chain’s debit costs.
“There were winners and losers” among the networks as the new routing logic took effect, Scholl said. Networks that lost volume at the chain took notice and contacted Vantiv, which in turn passed them on to Scholl and her team. In other cases, the group contacted the higher-cost networks directly. That allowed Giant Eagle to use the data it had collected on cost and volume to work out better rates. “Vantiv designed analytics to manage that for us day to day and month to month,” Scholl said.
The result was lower overall payment costs, she says.
The next challenge may lie in the introduction of the Europay-MasterCard-Visa (EMV) chip card standard, which merchants are expected to adopt by October 2015 to avoid assuming liability for counterfeit card fraud. Some experts have pointed out that, for now at least, the network choice merchants have with mag-stripe debit cards may not always be available with EMV debit, the standard for which was designed decades before Durbin took effect.
Asked about the issue by Digital Transactions News, Scholl said she was aware of it and was looking into it.
