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Friday, April 8, 2011

The latest interchange increases – waving a red flag?

MasterCard Worldwide recently released its spring 2011 changes to interchange rates and assessments. Included among them is an increase in the interchange rate for a widely used rewards card called the World Merit III, which for some retail merchants constitutes a large portion of their credit card volume, according to Phil Hinke, Founder of MLS Advocate LLC.

"World Merit III can be 20 to 30 percent of a retail merchant's MasterCard transactions," Hinke said. "So this increase could have a noticeable impact on a retailer's monthly processing costs."

Interchange hikes

Effective, April 15, MasterCard will increase the interchange rate for its World Merit III card from 1.73% + $0.10 to 1.77% + $0.10.

Also among the interchange increases disclosed by MasterCard were:

  • World Full UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security and cardholder verification) will increase from 1.83% + $0.10 to 1.87% + $0.10.
  • World Merchant UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security only) increased from 1.73% + $0.10 to 1.77% + $0.10.
  • The Supermarket Base and Enhanced Supermarket Base rates will increase from 1.48% + $0.05 to 1.48% + $0.10.

In addition, MasterCard will increase the assessment fee (a flat transaction fee added to the cost of processing each credit card sale) from 0.11 percent to 0.12 percent on consumer and commercial credit volume for transactions of $1,000 or more.

For a complete list of interchange and fee changes released by MasterCard in April, please go to www.mastercard.com/us/merchant/support/interchange_rates.html .

Also in April, Visa Inc. reportedly added an Interregional Super Premium Card with a rate of 1.97% + $0.00 and four new Interregional Full Chip Cards with an interchange rate of 1.10% + $0.00. All of the new cards also have the 0.40% and 0.45% international service and acquirer fees associated with them.

Mixed reactions

Announcements about interchange increases typically meet with different reactions, depending on who is hearing the news. Hinke, whose firm provides independent interchange statement analyses for merchant level salespeople, works only with sales agents who use an interchange plus approach to pricing. He considers information on interchange rate increases a sales tool.

"I educate my salespeople to go to their merchants and say, 'Because you are with us, and you are on interchange plus, you'll be getting a fair rate increase,'" Hinke said. "'You don't have to worry about us giving you a wholesale increase across all card types … the only prices that will change are on the specific cards that MasterCard or Visa changes.'"

Potential merchant ire

Brandes Elitch, Director of Partner Acquisitions at CrossCheck Inc. suggested raising rates on credit card interchange could be tantamount to waving a red flag in front of merchants, who have already gained traction in their battle to reduce interchange rates on debit transactions via the Durbin Amendment to the Dodd–Frank Wall Street Reform and Consumer Protection Act.

He anticipates that merchants, already "smelling blood" because of legislative progress made toward implementation of debit interchange caps, may soon turn their ire on credit card interchange.

"I think why these rates are important is that every time MasterCard or Visa raises their interchange, it's a poke in the eye to the top 200 retailers – and really all retailers," Elitch said. "And they are bound and determined to get caps on these rates. After the dust settles on Durbin with debit card caps, that won't be the end of it. The top 200 retailers will then go to their legislators for caps on credit card transactions." end of article

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