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Inflation is Building Pressure – Are Your Debit Deals About to Pop?

On June 10th, the Bureau of Labor Statistics announced that U.S. Inflation had reached 8.6%, the highest annual rate since 1981. The last time inflation was this high, consumers were still signing checks to make payments, and carrying around wads of cash with them everywhere they went.

The last time inflation was this high, consumers were still signing checks to make payments, and carrying around wads of cash with them everywhere they went. Wallets have gotten slimmer and lighter since, and the retail sector looks much different today than it did then. The costs of payments are extremely high, and in the last 12 months merchants have faced pricing pressure unlike anything they’ve seen in over 40 years.

This inflationary environment is putting an immense amount of strain on the debit deals , or incentive rates offered by domestic debit networks, that merchants have been able to achieve since the implementation of the Durbin Amendment in 2011. 8.6% is also a significant underestimation of inflation felt by certain retailers. Grocery stores for example, have seen 11.9% inflation in the same period, and gasoline prices have seen a whopping 48.7% increase in prices², putting extreme pressure on margins. Debit incentives , which can be achieved by approaching the competitive PIN debit market and offering volume for reduced acceptance rates, can lead to significant savings. But, due to the change in consumer spending over the last 2 years, they are also incredibly delicate. These changes in price, especially in such a short period of time, can undermine your debit incentives seemingly overnight. Merchants must stay vigilant and reassess their position quickly in order to stay ahead and stay optimal. Here are two key aspects to consider when relieving some of the pressure on your debit incentives.

Small Tickets: Big impacts

For those businesses where small ticket transactions represent a significant part of their transaction profile, like a single burger at a QSR or a gas station bag of chips for weary road trippers, achieving small ticket incentives is imperative to be fully optimal across all debit transactions. To illustrate the importance of this, let’s take a look at published small ticket rates for a local debit network on a $5 and $10 transaction.


Local Debit Network $5 Transaction Costs


Local Network Published Rates


For illustrative purposes, let’s compare the small ticket published rate to their retail published rate, representing what a small ticket incentive might look like from a local debit network. The small ticket rate is almost half the cost of their full-fledged retail rate for a $5 transaction. But for a $10 transaction, that gap significantly shrinks to nearly 80% of the cost. The high percentage amount and low per item amount both allow for very small fees for small transactions but make the rate very sensitive to changes in price. This is the threat of inflation on your small ticket rates: as your prices increase, the effectiveness of your negotiated small ticket rates could diminish significantly, and you need to reassess their worth at the new small-ticket average transaction value (ATV). It’s beginning to look like small-ticket debit incentives aren’t “all that and a bag of chips” after all, and they’re only getting more complicated and difficult to assess.

Put a Cap On It

At the published level, most PIN debit rates are a mixture of a percentage element and a fixed, per transaction element. This means that, as the transaction value grows, the only cause of an increase in the cost of the transaction is the percentage rate. Incentives, however, can be nearly whatever structure you want them to be – and caps are a Cadillac when driving down the inflation highway. For every dollar your ATV increases, the more transactions you’re seeing at a higher level, and the higher your gross costs are going to be – unless you have caps in place. These interchange caps will give you a maximum amount you’ll pay per transaction, no matter the size.

Capped vs. Uncapped Debit Costs

The graph above gives a great look at how caps increase in effectiveness when inflation occurs. In today’s environment, your prices growing by 8.6% (or higher) wouldn’t be met with an equivalent increase in the costs of payments acceptance. Suddenly, inflation has turned into a cost-saving opportunity for your business, allowing you to develop a competitive advantage in a time of significant uncertainty. When you approach the market for incentives, caps are a creative way to achieve the best incentive for your business – and when implemented can protect you from market shifts like inflation. Implementing caps to parry inflation pressures might remind you of the knights of old, but caps are a fantastic way to protect your costs of acceptance.


Inflation is One of Many Challenges for Debit Deals in 2022

Inflation is unfortunately adding another wall to the near-insurmountable maze of debit optimization, but with cost pressures coming from all avenues in 2022, debit optimization is not something you can wait to work on. Merchants must start future-proofing their cost savings today and taking advantage of small ticket rates and caps is only the beginning of becoming fully optimal. Achieving varied incentives might put you in a great position today, but issuance changes will affect millions of your transactions overnight, or you might see significantly more PINless enablement from a bank. Suddenly, your debit arrangements could be out of date and need to be constantly reassessed to unlock a market leading position. The key to this all? Robust, consistent, and relevant data. Without strong data from your processor, it’ll be difficult to even begin to optimize your debit deals in today’s environment, and only with trusted market expertise can you utilize that data effectively . To help merchants achieve the best possible level of data visibility and assist in optimization, CMSPI has developed a proprietary debit optimization tool with billions of transactions at your disposal. Please reach out to Elley Frost at for more information about how CMSPI can help with your cost optimization.