By Jim Reed
Two recent events are affecting the U.S. payments market and changing how funds are accepted, processed, and received – the passage of the Durbin Amendment, and the introduction of plans to migrate to the EMV global standard for authenticating credit and debit card transactions. Government agencies that accept electronic payments for benefit disbursement or payment acceptance need to understand the changes and assess their best options.
Fixed Convenience Fees for Debit Card Transactions
The Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, set a cap on interchange fees (a fee paid between banks for the acceptance of card-based transactions) charged to consumer and business debit cards issued by banks with $10 billion or more in assets. The rule, which was implemented in October 2011, drastically lowers the fee merchants are charged every time a customer pays with a debit card issued by a big bank.
Agencies that accept electronic card payments without assessing convenience fees to customers for one-time payments are experiencing lower acceptance costs, and agencies that charge convenience fees for card payments could see lower convenience fees assessed on debit card transactions, determined by the agency or the third-party payment provider that processes payments. Agencies should examine the convenience fee rates regularly and assess the need for charging a fixed dollar amount for debit card acceptance. Many agencies have found that a fixed convenience fee of less than $5 is sustainable, whether charged by their agency or a third-party payment provider. Working with a third-party payment provider, the states of Minnesota and Oregon have implemented a $3.75 fixed convenience fee for tax bill payments.
EMV Means Changes on the Horizon
The migration from magnetic stripes on payment cards to the EMV technology standard is rapidly changing the way people pay and receive funds in the United States. The industry continues to introduce new devices such as mobile and contactless payments, and new channels such as eCommerce and virtual wallets. Amid this evolving landscape is an opportunity for government agencies to improve both their operational efficiency and the payment experience they offer their customers.
EMV is the chip technology that is used in payments. It is like a miniature computer that sits inside a payment device and communicates with terminals. Using dynamic authentication (to provide protection against modification of data and cloning), EMV has greatly reduced fraud from counterfeit and lost and stolen cards. In addition to enhancing payment security, EMV gives the U.S. market the flexibility to reinvent, enhance, and customize the payment options available.
By April 19, 2013, all acquirers (financial institutions that accept or acquire card transactions from the banks that issue the cards) and payment service providers will have to be able to process any EMV transaction. As a result, issuers and acquirers are now improving their offerings to help merchants, including government agencies, upgrade their acceptance channels to meet the new EMV standard. This is an important infrastructure upgrade – similar to say, the shift from analog to digital – to create improved security and greater customer service.
For government agencies, EMV will mean less fraud and fewer data compromises, more interactivity, and more support for improvements, from the contactless smart cards (credit card-sized cards with embedded antenna and computer chip) increasingly being used by public transit agencies to payments made on the go from mobile devices. For governments, the changes will improve efficiency and save money. For constituents, the changes will increase convenience, security, and customer service when paying a bill or accessing electronic benefits on a card or through an ATM. Ultimately, this translates into increased confidence in government and deeper constituent relationships.
Government agencies are increasingly turning to electronic payments to distribute funds and accept payments, from income and property taxes to non-tax payments such as licenses, fines, or court fees. Electronic payments enhance security and create efficiencies by pushing paper checks and cash out of the system. They also provide increased flexibility and convenience to consumers who are looking for simpler and easier ways to pay and access their money.
Jim Reed is a senior account manager for MasterCard Worldwide. He can be contacted at firstname.lastname@example.org.