Analyst: Kiosks Not Likely Affected by Pending Debit Card Fee Cap

12 Sep, 2011 By: Erik Gruenwedel

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Durbin Amendment, which goes into effect Oct. 1, caps fees banks can charge merchants for debit-card transactions at 21 cents — an amount observers felt could undermine $1 disc rentals

New government regulations limiting the amount banks (and credit card companies) can charge merchants for consumer debit-card purchases isn’t expected to adversely affect disc rental kiosk operators such as Redbox and Blockbuster Express, an analyst said.

The Federal Reserve during the summer mandated banks charge merchants no more than 21 cents for individual debit-card transaction — about half the current 44 cents typically charged for a debit-card (not credit) purchase.

With small-ticket transactions such as kiosk rentals limited to 5 cents to 6 cents per $1 rental, there was concern the 21-cent fee — which goes into effect Oct. 1 — would be applied across the board — drastically undermining the low-cost disc rental business.

John Kraft, analyst with D.A. Davidson in Lake Oswego, Ore., said initial data from Visa found the credit card company imposing an additional 1-cent charge on small-ticket transactions.

Kraft, who said he expects MasterCard to follow suit, believes the 21-cent cap actually will benefit Redbox, which also sells higher-priced ticket items such as Blu-ray Disc movies and video games.

“For these transactions (or any above $10) Redbox will see lower debit interchange fee expenses,” Kraft wrote in a Sept. 12 note. “Overall, the debit rate schedule changes are not likely to be significant to Redbox.”

Kraft said the initial response by Visa is a positive for Redbox, which he said should see an uptick in business as Netflix subscribers hit Sept. 1 by a 60% rate increase seek lower-cost rental alternatives.

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