Visa Inc. and MasterCard Worldwide implemented new interchange rates Oct. 1, 2011. Though Visa quietly disclosed the rate changes in a bulletin sent to bankcard issuers and acquirers in August, the company refused to talk about its interchange rates with The Green Sheet. MasterCard and Discover also declined to talk about changes in their interchange rates.
Visa set its debit interchange rates at the maximum allowed under the Durbin Amendment to the Wall Street Reform and Consumer Protection Act of 2010 for its Visa Check Card, Consumer Prepaid, Commercial Prepaid, Interlink PIN, Small Business Debit and Interregional Debit cards. Visa also made a number of modifications to its rates.
The new Visa Inc. rate schedule made modifications in 19 prepaid interchange categories - most of them increased. The basic rate went from 0.95 percent plus 20 cents to 1.15 percent plus 15 cents. An average $38 purchase will now cost merchants 59 cents in interchange fees - a five percent increase from the previous 56 cents.
The petroleum category took the biggest Visa rate hit. Merchants will pay 73 cents on a $50 purchase, an increase from 55 cents. The interchange rate for prepaid transactions at gas stations was increased by 29 percent on an average sale. A number of e-commerce and travel and entertainment categories had double digit rate increases. Rates for utilities and tax payments were lowered for debit and prepaid cards.
The interchange rate for small transactions will go from 1.55 percent and 4 cents to 1.6 percent and 5 cents - a 9 percent increase on the average fast food ticket.
Following are some of the further modifications Visa made to its interchange rates:
To see all of Visa's updated rates, see the company's Interchange Reimbursement Fee table at http://usa.visa.com/download/merchants/visa-usa-interchange-reimbursement-fees-october2011.pdf.
MasterCard now has two new interchange rate programs: regulated POS debit at 0.05 percent plus 21 cents and regulated POS Debit with Fraud Adjustment at 0.05 percent plus 22 cents. Discover instituted two new interchange rates for nonexempt and prepaid cards.
Discover cards with no fraud prevention adjustment will pay 0.05 percent plus 21 cents. The Discover card rate where the issuer has a certified fraud prevention procedure is 0.05 percent plus 22 cents.
Jeff Fortney, Business Development Director at Clearent LLC, believes the interchange rate modifications are not all that significant, although transactions for tickets under $12 did go up. He believes, based on the card companies' history over his years in the business, significant rate changes will come later. "I wouldn't worry about what happened in October," he said. "I'd be more cognizant of what happens down the road. Visa will not sit still; they will do something."
Fortney expects the changes he anticipates will take at least a year to institute. "Beginning in April, I think, based on its history, Visa will begin little tweaks," he said. But regardless of what Visa and other card companies do with rates, the Durbin Amendment has consequences ISOs need to think about, Fortney added.
"ISOs need to talk to their processing partners and find what options they truly have," he said. "ISOs need to know if they can reduce or change their merchant pricing with the contract they have.
"They need to know how to protect their portfolio by determining which accounts are at risk. If they are on an interchange pass-through, there is a real chance for gain. If you discount merchants you need to identify the merchants in your portfolio that are at risk and find out what your processing partner will allow."
Industry consultant Paul Martaus told The Green Sheet he has talked to "a significant number of ISOs" about the effects of the Durbin Amendment.
He believes ISOs with blended rate contracts will increase profit on their monthly receipts and still be able to tell their merchants the impact on their monthly charges will be negligible although merchants will see a slight raise on credit card rates. "All the ISOs I talk to are saying they are taking the money and running with it," he said.
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