Debit Card Interchange Fees

On June 21, 2010 an agreement was reached with key conferees on the Wall Street reform bill regarding the Durbin amendment regulating interchange fees which passed the Senate 64-33.

There are a number of modifications and compromises that were made to the Durbin interchange amendment. Some of those were:

•Discounting between card networks
The Senate-passed amendment provided that card networks could no longer prevent merchants from offering customers a discount to use one card network vs. another (e.g., a discount to use Visa vs. MasterCard), and that this discount would apply in both the credit card and debit card contexts.

This provision has been removed from the amendment. In its place the compromise includes a provision directing the Fed to issue rules preventing card networks from requiring that their debit cards can only be used on one debit card network (thereby ensuring that merchants will have the choice of at least two networks upon which to run debit transactions). This provision also provides additional competition to a previously non-competitive part of the market. It allows merchants to choose the debit network with the lowest cost – the opposite of the current system where merchants are forced to use a specific network with fixed prices.
•Discounting between forms of payment
The Senate-passed amendment provided that card networks cannot prevent merchants from offering a discount for one form of payment vs. another (cash vs. check vs. credit vs. debit). The compromise clarifies that these discounts cannot be offered if the discounts differentiate between card issuers or card networks.
•Setting of maximum/minimum transaction thresholds for use of a credit card
The Senate-passed amendment provided that card networks could not prevent merchants from setting a minimum or maximum dollar amount for payment by credit card.
The compromise provides that such a minimum may not exceed $10, with authority given to the Fed to increase that dollar amount. The compromise also limits the ability to set maximums for payment by credit card to the Federal government and colleges and universities. The compromise further clarifies the Senate language and establishes that a minimum payment not exceeding $10 – matching laws currently on the books in a number of states.

Investing in Training is Profitable

The most successful companies have long recognized the value of a well trained staff. Some of the many reasons savvy business owners realize how investing in training will impact the bottom line are: increased job satisfaction and morale among employees; increased employee motivation; increased efficiencies in processes, resulting in financial gain; increased capacity to adopt new technologies and methods; increased innovation in strategies and products; reduced employee turnover; enhanced company image. These are just some of the compelling arguments to make ongoing training an organizational goal.

Staff training can be on the job where more experienced employees are assigned to train new employees. Cross-training existing employees on the various tasks handled by other staff is also important. This ensures operations are not disrupted when employees leave the company either temporarily or permanently. Sometimes a company does not have the knowledge internally to train staff for various reasons: key person left the company, company acquired new technology, or simply wants to learn how to leverage more feature/function from their current technology. Regardless of the reason, a prudent owner will recognize the investment value of developing his human resources to actualize increased efficiencies that will ultimately impact the bottom line.

These same principles hold true for independent grocers in this competitive market. As a solutions provider for independent grocers we understand these needs and have developed training programs to assist our customers in this on going effort. If you want to make the investment to improve your operation, contact your STCR Sales Representative. They can tell you about what options and programs we can customize to fit your specific needs and then see how it can improve your bottom line.

PCI Update

The PCI Security Standards Council announced recently that all 3 standards it controls will follow a three year development lifecycle.


The PIN Transaction Security requirements which specify how pin numbers are handled already used the three-year cycle with Version 3.0 coming out earlier this year.

The PCI Data Security Standard (PCI DSS) used a two-year cycle – the current cycle ends in October 2010. The PCI DSS is a set of requirements for protecting card data by way of procedures, policies, networking, software and other areas.

Payment Application Data Security Standard (PA-DSS) also used a two-year cycle – the current cycle ends in October 2010. The PA-DSS is a set of best practices called the Payment Application Best Practices (PABP). The purpose of the PA-DSS is to help vendors and others build software that protects card data, including mag stripe data, CVV2 and pin numbers.

The reason for going to a three-year cycle is to allow more time for merchants, banks, processors and vendors to implement the standards and meet the requirements. It also allows more time for the council to receive feedback about the standards and to discuss that feedback at community meetings.

The council also continually evaluates new technology and threats, and if needed, makes changes to the standards or provides guidance. Bob Russo, general manager of the council said, “The PCI Security Standards Council relies heavily on feedback from our participating organizations and the PCI community to create standards that strengthen the security of payment card data, and the input we’ve received has been overwhelmingly in favor of lengthening the lifecycle… Moving the revision cycles to three-year periods for all three existing standards ultimately means organizations have additional time to focus on making sure they have the appropriate processes and controls in place to secure cardholder data.”
PCI Security Standards Council home page: https://www.pcisecuritystandards.org/index.shtml

Are Processing Fees on the Decrease?

An estimated $48 billion in swipe fees were charged by credit and debit card networks in 2008. If assistant Senate Majority Leader Dick Durbin has his way these fees will be on the downslide. In May of this year the US Senate passed an amendment to a banking overhaul legislation that will impose price controls on the debit transactions taken at retail establishments.


The Durbin amendment could save billions of dollars for all types of retailers, from family restaurants, dry cleaners and grocery stores that are increasingly realizing that more and more consumers are making their purchases with debit/credit cards. Retailers have tried to get legislation to control these fees but have run into road blocks along the way.

The amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount. These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.

The amendment also prevents card networks like Visa and MasterCard from penalizing merchants for offering discounts to customers. The amendment would allow sellers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card. The amendment would also allow sellers to choose to decline credit cards for small dollar purchases (because interchange fees often exceed profits on such sales).

Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the U.S. While Visa and MasterCard continue to raise U.S. interchange rates (which are already the world’s highest), researchers have found that “regulators in other countries have worked with Visa and MasterCard to voluntarily reduce their interchange rates.” Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.

The amendment does not affect credit card interchange fees. Some have argued that the Durbin amendment would reduce credit availability by regulating credit card interchange rates. However, the amendment’s reasonable fee requirement only applies to debit cards.
Stay tuned, it is not a done deal yet. The banking overhaul bill still needs to pass the Senate, and then it must be reconciled with a House bill that does not mention debit card interchange fees. Credit card companies and banking institutions promise to fight the bill.

Is Your Backup Working?

In the wise words of Ben Franklin ‘an ounce of prevention is worth a pound of cure’. A good backup/recovery solution for mission critical systems is an ounce of prevention crucial to any business owner. The pain of a hard drive failure without a good backup could include irrecoverable data loss, having you system down for an unneeded longer amount of time and could prove to be very expensive. Not only is there the obvious expense of the required emergency services, but even more costly is the lost revenue and customers associated with excessive down times.


STCR Business Systems provides a full backup/recovery solution to all our customers but having a solution in place is only the first step. Ensuring it is completing correctly is the second step and should be a high priority for every store. Some solutions are automated but they too need to be inspected. It would be a mistake to assume a backup will be there when needed only to find out, when it’s too late, it’s not. There is no better way to protect your investment and minimize potential down times, due to a hard drive failure, than consistently confirming your backups are completing correctly. This way you can be proactive and call the Help Desk if there are any issues.
If you don’t know if your system(s) are backing up or even how to check, please call STCR’s Help Desk at (607) 757-0181. One of our friendly, professional Retail Systems Analysts will be happy to assist you. Let us help you prevent the costly mistake of not periodically verifying the backup solution is working successfully.

What is Chip and Pin?

Will smarter credit cards be in our near future? What is Chip and Pin? Chip and Pin is a UK government-backed initiative to implement the EMV (short for Europay, Master Card and Visa) standard for smart payment cards.


EMV has been adopted in virtually every part of the world, including Canada and Mexico, for the storing of payment-card data. The U.S. maintains a vested interest in magnetic stripe based cards and the devices associated with them. Expense is currently the biggest barrier for US implementation along with liability for fraud loss. Criminals already working around the system also figure into the reluctance to bring it to American cardholders.

Javelin Strategy & Research estimates an EMV roll out across the United States would cost about $8.6 billion including the following:

• POS terminal replacements -- approximately $6.75 billion
• EMV card issuance -- around $1.4 billion
• ATM upgrades -- approximately $500 million
Also to be considered is the fact that the greatest beneficiaries of Chip and Pin are the card issuers with merchants and customers taking the brunt of the losses. The same merchants that will need to pay for most of the upgraded equipment to accept the new devices.

"(Chip and Pin's) main attraction to banks is the 'liability shift,' which is precluded in the U.S. by Regulation E," wrote Ross Anderson, a professor of security engineering at the University of Cambridge, in an e-mail. "This shift means that disputed transactions will be blamed on the customer if a PIN was used and the merchant otherwise. Thus, in theory, the bank would never again be liable.

Such a shift isn't possible in the U.S. because of rules set up under the Electronic Fund Transfer Act of 1978, says Steven J. Murdoch, Ph.D., a security researcher at Cambridge University. This is probably good news for U.S. consumers: Murdoch says that since the standard was fully adopted, it's been next to impossible for British consumers to recover money stolen in fraud.

"The banks get to effectively make up their own rules, and the rule they've chosen is that if your PIN is used, then you must have been negligent about protecting your PIN, therefore you're liable for the fraud," says Murdoch.

With this much uncertainty and these expenses without a return on investment we don't expect Chip and Pin to take over the US soon.

SMALL BUSINESS TAX RELIEF BILL

The Small Business Jobs Tax Relief Act of 2010 will provide tax cuts for small businesses to help them grow and create new jobs. The Small Business Jobs and Credit Act will enhance lending opportunities for small businesses. This legislation is offset by closing some existing tax loopholes.


This bill represents a continuation to spur job creation and improve the quality of life in communities. Small businesses need capital to create jobs and lead economic recovery. The Small Business Jobs Tax Relief Act contains important tax cuts and lending opportunities that will help give small business owners the resources and flexibility they need to help their businesses grow.

The bill will increase the capital gains exclusion on investments in small business stock to 100 percent (from 75 percent in the American Recovery and Reinvestment Act) for qualifying stock acquired after March 15, 2010 and before January 1, 2012.

The bill will also alleviate certain onerous tax penalties on small businesses. Under current law, Section 6707A of the Tax Code imposes a penalty on the failure to disclose a “reportable transaction” on any tax return or information statement. There are six categories of reportable transactions, one of which is a “listed transaction,” a type of transaction identified by the IRS through guidance as a tax avoidance transaction. The penalty for failure to disclose a reportable transaction (other than a listed transaction) on a return is $10,000 in the case of individuals and $50,000 in any other case. For listed transactions, the penalty is $100,000 in the case of individuals and $200,000 in any other case. The bill generally would make the penalty for failing to disclose reportable transactions (including listed transactions) proportionate to the underlying tax savings.

In addition the bill will allow small businesses to deduct up to $20,000 in small business start-up expenses not related to capital or equipment. The bill will also allow non-recourse Small Business Administration loans to qualify for certain exceptions to the at-risk loan rules, allowing business expenditures made under those loans to be deductible against related business income.