By Ken Musante
Humboldt Merchant Services
Interchange schedules are publicly available on Visa Inc.'s and MasterCard Worldwide's Web sites. It should be easy, then, for any merchant to know the costs of a transaction. However, instead of getting easier to understand, interchange is complex and growing ever more obscure.
Take, for example, Visa's recent decision to lower petroleum interchange, effective October 2008. In the August edition of Cards and Payments, Bill Sheedy, Visa's Global Head of Corporate Strategy (talk about an important sounding title) stated, "By lowering our rates, we hope to see oil companies pass these savings along to their stations and ultimately consumers."
But will the merchants served by merchant level salespeople ever realize these savings?
On the surface, Visa's new petroleum rates seem a gift to petroleum resellers. The new rate announced is 1.15% + $0.25 for all consumer credit card types for merchant category codes 5541 and 5542. This equates to $0.94 on a $60 sale versus the former interchange schedule's fee of $0.96 to $1.36 on a comparable sale.
Sadly, these new rates are accompanied by more small print than a PayPal Inc. user agreement.
Specifically, for a fuel merchant to qualify for the new rate, the merchant's processor must support real time clearing (RTC). To do this, all transactions must be processed exclusively through the VisaNet Integrated Payment System's single-message system (SMS) component.
Additionally, each acquirer processing RTC transactions must use a unique bank identification number (BIN) in order to support unique settlement reporting.
RTC is being implemented to allow authorizations for fuel transactions to be increased to $500 at either automated fuel dispensers or face to face transactions. This is important. Formerly, $75 was the maximum purchase for fuel transactions that were protected from chargebacks when signatures were not obtained (such as at an automated fuel dispenser).
So, with RTC, the maximum chargeback-protected transaction increases to $500. This is helpful. When fuel prices soared above $4 per gallon, $75 did not fill many larger vehicles.
Further benefits of RTC provide for the authorization to be matched with the actual transaction or cleared from the cardholder's file within two hours of purchase.
This helps the cardholder, as it does not needlessly tie up the cardholder's available account limit. (And with authorizations as high as $500, you can understand why it is important to clear transactions quickly.)
RTC is a huge benefit and the reason petroleum authorizations and transactions can be much larger. Formerly, the process to purge or match transactions took nearly two days.
The problem is that only processors and acquirers processing via SMS can take advantage of the new interchange rate. The RTC requires SMS because of the numerous enhancements in the process, starting with the authorization.
Typically, a petroleum merchant seeks a $1 status check before allowing a given transaction. This is why transactions must be limited to nominal amounts and do not allow consumers to fill up their supersized gas tanks.
Unfortunately, anyone processing transactions via Visa's Base II data processing system is left out. Because of the expense in updating their systems, many processors cannot simply decide to process via SMS.
Further, even if they chose to do so, it would be a huge undertaking and expenditure to accommodate the new messaging format - not to mention the time delay between project initiation and completion.
Moreover, because Visa requires each RTC endpoint to use a unique BIN, existing acquirers will need to establish new BINs, and processors will need to update their systems accordingly.
Until then, the new Visa petroleum interchange is like a campaign promise. It sounds great, but remains elusive.
Ken Musante is President of Humboldt Merchant Services. Contact him by e-mail at kmusante@hbms.com or by phone at 707-269-3200.
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