Durbin Routing Rules Should Apply to ATMs, ATMIA Urges in Meeting with Fed

The ATM Industry Association met today with members of the Federal Reserve staff to discuss making ATM debit transactions subject to the routing requirements of the Durbin Amendment to the 2010 Dodd-Frank Act.

The association, which represents ATM independent sales organizations and other retail deployers, wants the provision because it will provide a fairer market for its members, it says.

In ATM transactions, the card issuer pays interchange to the acquirer/owner. That’s opposite the way interchange flows in point-of-sale payment card transactions. The move comes as non-bank ATM operators struggle to remain profitable.

The Durbin Amendment enables merchants to have routing choices for their point-of-sale transactions, but it does not apply to ATM transactions. Interchange is one of the major revenue streams for ATM deployers, another being surcharges. Often called convenience fees, surcharges are fees charged to a consumer to use an ATM not owned by his or her financial institution.

Currently, ATM transactions are exempt from the Durbin Amendment because they are not considered a payment and ATM operators are not considered merchants, says David Tente, executive director of the U.S. arm of the ATMIA.

The ATMIA’s position is that ATM acquirers are still subject to the anti-competitive network rules that the Durbin Amendment sought to counter. “The situation as it exists today does not accomplish what Durbin intended,” Tente tells Digital Transactions News. ATMs are part of the payment network because of how the cards are used and because of the infrastructure used to complete an ATM transaction, he says. “This is part of the payment network, therefore it should be subject to the same anti-competitive measures already in there for merchants,” he says. “Right now Durbin gave merchants the ability to make routing choices.”

The ATMIA’s effort makes sense, says Sam M. Ditzion, president and chief executive at Boston-based Tremont Capital. “They want to make sure the rules relative to ATMs are transparent and that choice is equitable,” Ditzion says. That’s because they want to ensure “everyone is on a level playing field when it comes to understanding who charges what and that the acquirers should have some say in the matter in terms of which networks they want to process their transactions through.”

Similarly, Paul Tomasofsky, president of Two Sparrows Consulting, says network choice should rest with the ATM deployers. “They are the ones that risked their capital to deploy the machine and they should be able to choose the least net-cost choice for transaction processing,” Tomasofsky tells Digital Transactions News in an email.

“Ideally, the debit networks should be able to promulgate network rules to allow this to occur, but if all networks do not allow ATM owner choice then the system won’t work,” Tomasofsky says. “If all networks can’t self-regulate as an industry then other alternatives should be utilized. This will become even more of an issue as EMV debit cards are deployed as networks that have proprietary AIDs on cards will have an advantage over networks that use the ‘common debit AIDs.’”

An AID, or application identifier, is a tool that allows transactions on debit cards bearing chips using the Europay-MasterCard-Visa (EMV) standard to be routed to a choice of networks in accordance with Durbin. U.S. preparation for EMV is heating up in advance of an October 2015 deadline set by the card networks.

Of course, should the ATM operators be successful reaping the benefits of network choice it would carry some assumptions, suggests Madeline Aufseeser, senior analyst at Boston-based Aite Group. “It would assume that different networks charge different fees for a particular transaction,” Aufseeser says. Even then, ATM operators would only be able select a network based on the ones the card issuer belongs to and the ones the operator is a member of, she says. “If that’s the case, ATM operators would benefit from using the least-costly network,” she says, likely favoring larger operators over smaller ones, which may not have as easy of access to pricing information.

Though no one can predict whether the ATMIA’s meeting with the Federal Reserve will produce results, Ditzion says it is positive that the ATM ISO industry trade group had the meeting.

“Getting a meeting with the Fed is not an easy task on a matter like this, and the Fed is always eager to understand some of the intricacies of the industries it regulates,” Ditzion says. The meeting likely aided the regulators’ knowledge of the ATM ISO industry, he says.