Blog October 17th 2023

Damage to Durbin Amendment Reaches Tipping Point

New charges now mean more than half of regulation benefits have been eroded.

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Alistair Matthewson

SVP, Global Consulting

According to our estimates, new network fees, implemented in January 2019, have imposed more than a half-billion dollars’ worth of additional charges on merchants, triggering a significant landmark in the struggle against ever-increasing card fees.

Now, more than half of the savings from the popular Durbin amendment, intended to benefit merchants and consumers, have been wiped away by the global card networks. When implemented in 2011, it was estimated the Durbin amendment (passed as part of The Dodd-Frank Act) would provide $9.37 billion in annual savings for merchants – welcome relief for an industry often operating on razor thin margins.

CMSPI estimates that a recent announcement from the global networks detailing January 2019 and April 2019 fee increases will impose an additional $570 million a year on the merchant community, further eroding the benefits. Considering the significant resources that merchants have invested into litigation and regulation in hope of achieving a fair payments landscape, this announcement is a disappointment for the merchant community, and raises significant concerns for 2019 and beyond.

The Dodd-Frank Act – passed as a response to the 2007 financial crisis – is one of the most significant financial reforms to be signed into U.S. law since the Great Depression of the 1920’s. Designed to “…promote the financial stability of the United States by improving accountability and transparency in the financial system…” the main beneficiaries of the Durbin amendment seem to be Visa and Mastercard, with little discernable added transparency or accountability. Both corporate giants enjoy higher profits (both now boasting 50-60%+ profit margins) since the Durbin amendment was introduced, helped in part by the 28 new and amended network fees imposed on merchants over the last eight years.

Network fees have either been amended or increased nearly every year since 2011. Merchants face huge uphill struggles when attempting to obtain genuine relief from high card fees, and even ‘wins’ such as regulation or litigation settlements are soon eroded or wiped out by network fee increases.

One of the most widely reported myths surrounding the Durbin amendment is that merchants have saved huge amounts of money but have failed to pass these savings onto consumers. In reality, merchants cannot be expected to pass on savings that they are not receiving in the first place. Savings achieved by merchants are more than 50% less than originally estimated, and if history is any indication, further erosion seems likely. For the merchant community, already operating on small margins and in the midst of the so-called ‘retail apocalypse’, the future looks daunting.

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