The Green Sheet Online Edition
May 14, 2007 • Issue 07:05:01
Visa's changes muddy interchange waters
In establishing its 2007 interchange rates, effective April 14, Visa U.S.A. left most rates unchanged. But it has released a new credit card type - Signature Preferred - that raises rates on certain transactions. Also, Visa modified the existing Commercial card rate schedule. It created three interchange categories by which it now identifies each Commercial card transaction:
- Business to Business (B2B)
- Card Not Present.
These increase the number of rates qualifying for the Custom Payment Service (CPS) designation.
The impact of the Signature Preferred card and the new Commercial rate categories on ISOs will not be fully known by processors until they have analyzed the percentage of Signature Preferred cards used and the percentage of transactions at the new rates, said Ken Musante, President of Humboldt Merchant Services.
The effect depends largely on the percentage of new Commercial card transactions designated within specific merchant types. "It depends on the cards being used and how they're being processed," he said.
"The way in which the [Visa] rates are being increased does not lend itself to clarity of interchange rates," Musante said. "Until we understand how existing and new transactions fall within these [three] categories, we don't know the impact on our costs, nor on our merchants."
On Signature Preferred cards, merchants on pass-through pricing will bear the cost of the higher processing rate, he said. But for merchants on three-tiered pricing, acquirers will be faced with the higher expense, which they must choose to absorb or pass on through rate increases.
For ISOs with three-tiered pricing, "these are now more expensive transactions, but there's no additional revenue because Signature transactions were already downgraded to nonqualified transactions," Musante said.
"Starting April 2007, consumer signature Visa transactions will cost acquirers and merchants 30 basis points more," Musante wrote in the Jan. 22, 2007, issue of The Green Sheet ("Card tricks: Shuffling rewards, at whose cost?" issue 07:01:02).
Visa Signature Preferred credit card rates are 2.20% plus $0.10, except for B2B cards, which are reimbursed at 2.10% plus $0.10.
Account-level processing expanded
A recent Visa Net processing upgrade expands account-level processing (ALP), which lets merchants connect loyalty promotions to the unique card account numbers (all 16 digits) of their customers.
Once they've installed revised software to process card transactions at the individual cardholder account level, merchants can tailor discounts and promotions to them, delivering the promotions as part of the authorization message.
Issuers will be required to identify these card types in the authorization code. By October 2007, all acquirers must be able to receive the designations in a new field code (62.23) in the authorization request. ALP reportedly lowers processing costs. In Commercial card transactions, ALP software prompts for level 2 or level 3 data, enabling merchants to get the best possible interchange rate.
ALP is an attractive feature for issuers because converting cardholder accounts to new products, such as the Signature Preferred card, becomes less "troublesome," Musante said. "Effectively, issuers could move the cardholders to the new product type without re-issuing the card number."
Although the rates only took effect April 14, Humboldt will closely analyze the results of April's processing returns, "looking for key trends to share with merchant level sales partners," Musante said.
"Ultimately, the acquirers that will succeed and prosper - and coach their merchants - are the ones that understand these qualifications the best."
The new rates provide additional rewards to cardholders most apt to spend more and convert to Visa from American Express Co.-branded cards, Musante said. Travel and entertainment merchant categories - where AmEx use is strongest - will "continue to get hit the hardest" by Visa rates.
Changes to Visa's Commercial interchange reimbursement fees (as well as a complete rate schedule) appear in this issue of The Green Sheet.
Some of these rates constitute increases. For example, the rate on Commercial Purchasing Level III cards went from 1.70% to 1.80% (plus the $0.10 fee), and the rate on Commercial Purchasing Electronic cards went from 2.20% to 2.45% (plus $0.10).
"Visa constantly evaluates the marketplace to determine interchange rates," stated Rhonda Bentz, Visa Vice President, in a press announcement. Visa assesses factors such as how a transaction is processed, risks associated with a transaction and the rates on competing payment products.
Commercial B2B card interchange rates can be obtained for commercial transactions in both face-to-face and card not present environments but must be CPS-qualified and from merchants operating in qualified merchant category codes (MCCs).
The B2B rate for Business, Corporate and Purchasing cards is 2.10% plus $0.10. Commercial transactions eligible for the retail rate must be:
- From merchants in nontravel service MCCs
- Occur in face-to-face environments.
Visa expanded the MCCs that qualify for the CPS/Retail 2 interchange category and rate to include direct marketing subscription merchants (MCC 5968), fuel dealers (5983), child care services (8351) and charitable organizations (8398).
The card Association removed the requirement that the authorization amount match the clearing amount for consumer check card transactions to receive the CPS/Retail Debit interchange rate in certain merchant categories in which cardholders routinely add tips.
Visa extended the 20% tolerance above or below the authorized transaction total to these merchant categories: taxis and limos (4121), bars and taverns (5813), beauty and barber shops (7230), and spas (7298).
Less pain at the pump
Visa responded to some vocal critics with key policy changes affecting gas stations. The card Association clamped down on issuers that took advantage of last year's sky-high gas prices.
Some issuers reportedly charged back the entire bill for any petroleum purchase that exceeded Visa's transaction cap. Station owners were sometimes hit with Reason Code 96 when SUV drivers surpassed the cap.
A rule change permits issuers to charge back only the difference between the transaction amount and the applicable limits. And issuers now have only 75 days in which to challenge Code 96 transactions, instead of 120 days.
The cap is $75 for Visa Corporate and Purchasing cards; $150 for Visa Fleet cards; and $50 for all other Visa cards. Visa's ALP program enables automated fuel dispenser merchants to use different authorization thresholds, minimizing chargebacks, according to Visa.
Visa publishes all its rates online at http://usa.visa.com/merchants/operations/interchange_rates.html.
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