Visa Softens Its Stand on Interlink Charges

B ackpedaling. Every company has done it, whether as a result of a tactical misrepresentation or a marketing misstep. The backlash from Visa U.S.A.'s 2001 announcement that it was raising merchant fees for transactions processed on its PIN-based network, Interlink, has caused the powers that be at the nation's largest credit card company to re-examine that decision. When major retailers such Wal-Mart, Walgreen and Publix Super Markets vowed to take their payment processing elsewhere, Visa starting scrambling.

Visa recently announced that the rate hike originally scheduled for October 2001 would be delayed until March 14, 2002. On that date, interchange will rise from a maximum of 20 cents to 45 cents for general transactions and from a flat fee of 15 cents to 22 cents for supermarket transactions.

But what really has everyone feeling better is the added announcement that Visa will offer volume discount to "qualifying" merchants. This tiered payment-structure discount will be based on several variables, including merchant type, volume of sales and Interlink transactional volume.

In a prepared statement from Kelly Presta, Vice President of Visa U.S.A., the company supports its new position by saying, "In an attempt to grow this business segment as much as possible while remaining sensitive to the needs of all stakeholders - members, merchants and cardholders alike - Visa U.S.A. has re-evaluated the debit PIN-based category and the related interchange."

In other words, they're doing the right thing by saying they respect the industry. They are playing the good corporate citizen without admitting any guilt. The big question: Will the industry believe it?

As a result of Visa's most recent announcement, Wal-Mart has decided to give its marriage with Visa and Interlink another try. As for Walgreen and Publix, while they haven't headed to divorce court yet, they are leaving that option open, willing to hear Visa plead its case further before making a final decision.

Was all this hoopla warranted? Did Visa deserve all the bad press, or is it just easier to take shots at the biggest target? Consider smaller but still competitive Concord EFS. As owner of Star Systems, the largest EFT platform in America, it rivals Visa in PIN-debit processing.

As of March 1, it will raise its interchange fees as well. General transactions will come in at a maximum of 34 cents, and supermarket transactions will have a flat fee of 19 cents.

This increase came in direct response to Visa's increased rates, or so says Concord. But Concord didn't experience the furor Visa did. Why not? Could it possibly be the fact that Visa's increase was perceived to be huge while Concord's wasn't? That's the price you pay when you're big man on campus.

Credit card industry expert Paul Martaus, President of Martaus & Associates, sees all sides to this scenario:

"You've got to understand the size and enormity of this company. They are the number one brand in this space, and because of that they can take on the specter of Captain Bleigh or Darth Vader. They have the ultimate responsibility for directing the whole message, the whole persona of the major credit card brand that's put out there by banks.

"Banks don't choose strategic direction for a product like that on their own behalf. They give the car keys to Visa and say, 'Here - you go drive.' Visa becomes the designated driver."

Martaus continues, "Visa has two major sources of revenues - marketing dollars, fees, dues, etc. and the other source is from transaction processing. Since there is a near zero sum game among consumers, Visa has to look at the other source.

"We're in a retrenching economy and Visa had to increase revenue somehow, and so they choose transaction processing. I hate to use the word blunder or miscalculation, but the bottom line is they are going to do this every once in awhile. Some choices work, some don't."

The final question is whether Visa's new tactic will work. What is the alternative for these major retailers - not accept payment from the country's biggest brand? In this economy, who would purposely cut off their revenue nose to spite their business face?