Wednesday, December 23, 2020
No similar correspondence has been reported out of Mastercard, but the two companies’ timetables for interchange rate changes tend to be similar.
Visa and Mastercard update interchange rates twice a year – typically in April and October. In February 2020, Visa made headlines when it disclosed significant rate hikes for several transaction categories, most notably ecommerce purchases. At the time, it also revealed interchange rate reductions for verticals like grocery, health care, education and real estate.
But as state and local stay-at-home orders and business closures brought commerce to a slow crawl in the spring, both companies opted to back-burner planned rate hikes, at first until July, and eventually October. Visa, in a statement this past summer, described the delay until October as “the right decision to ensure the long-term stability of the digital payments ecosystem.”
Now it appears no increases will go into effect, at least for card-present transactions, until April 2021. Bloomberg quoted Visa as stating, “Given the unprecedented impact of the COVID-19 pandemic on the U.S. economy, Visa has determined it would not make any structural changes to the payments ecosystem” at least until next year.
Visa did, however, move ahead with planned reductions in interchange rates for grocers in July. Callum Goodwin, chief economist at the payments consultancy CMSPI, said the reductions for grocers were a “welcome relief because there were concerns that these interchange fee decreases would be delayed along with other fee changes.”
Goodwin also stated that the delay until April 2021 of planned 2020 rate hikes “could mean that merchants pay $465 million less in fees over the delay period, with low-margin industries that have been hit the hardest by the pandemic—such as restaurants, airlines and hotels—set to benefit the most from the development.”
Visa also offered an enticement of lower interchange for certain transactions, beginning in October 2021: tokenized transactions using a Visa EMV payment token, according to Bloomberg. Tokenization puts downward pressure on interchange because it is seen as eliminating card fraud, particularly with online sales. It does this by replacing sensitive card information with a unique one-time-use set of numbers (or token) that travels through the payment network and effects clearing and settlement.
Tokenization is most commonly used for online transactions but can also provide better security for NFC and in-app payments. While more secure than transmitting card numbers across networks, tokenization requires buy-in from numerous parties. Issuers need to get NFC cards into consumers’ wallets, consumers need to enroll their accounts with their digital payment services providers (for example, online retailer or mobile wallets) and merchant adoption is paramount.
But some merchants complain that because a tokenized transaction must be routed through the network issuing the token (that is, Visa or Mastercard) they are precluded from routing tokenized PIN debit card transactions through less-costly regional ATM networks, such as Star, NYCE and Shazam.
The Durbin Amendment to the 2010 Dodd-Frank Act, in addition to establishing a regulatory framework for debit card pricing, also required that merchants be accorded at least two options for routing debit card payments. Late in 2019, several media outlets reported that the Federal Trade Commission, which has enforcement authority under the Durbin Amendment, was investigating whether the card networks and debit card issuers were putting up roadblocks to debit card routing through the less-costly regional networks.
The FTC has history with the card brands’ debit routing practices. In 2016, the agency pressured both Visa and Mastercard to clarify that retailers could not ask debit cardholders to choose which debit card network they wanted their payments to route through. The FTC has neither confirmed nor denied reports about any current investigations into debit card routing practices. 
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