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USA Technologies a Strikes Small-Ticket Debit Interchange Deal With Visa
November 4, 2011


Vending machine payment-services provider USA Technologies Inc. has struck a one-year interchange deal with Visa Inc. that allows machine owners to accept debit cards without higher costs. New interchange pricing that took effect Oct. 1 had threatened to raise card-acceptance costs for USA Technologies’ clients by more than 200%. The Malvern, Pa.,-based company, which services 129,000 unattended locations that accept cashless payments, has not reached a similar deal with MasterCard Inc. but continues to accept that network’s debit cards.

“The interchange reimbursement fees made available to the company by the network [Visa] pursuant to the agreement will allow the company to continue to accept the network’s debit products over the one-year term without adversely impacting the company’s historical gross profit from license and transaction-fee revenues,” says an Oct. 18 regulatory filing from USA Technologies. The company didn’t announce the deal until Friday.

Both Visa and MasterCard on Oct. 1 replaced their identical small-ticket debit interchange rates (those applicable to transactions under $15) of 1.55% of the sale plus 4 cents with a single rate for each network of 21 cents plus 0.05% of the sale. That’s the new cap the Federal Reserve Board set for debit cards from issuers with more than $10 billion in assets, with another 1 cent pending for fraud-control expenses. USA Technologies didn’t disclose pricing details in the filing or Friday's news release, but the release underlines the term “no increase,” implying 1.55% plus 4 cents remains in effect.

With an average ticket of $1.67, USA Technologies could have seen its interchange expense rise by 235%, from 6.6 cents to 22.1 cents, had 22 cents plus 0.05% been applied. Some 82% of purchases on the company’s network in fiscal 2011 were small-ticket debit card transactions, with 75% of those on Visa debit cards.

“As a leading provider of cashless payments systems to the small-ticket, unattended markets like vending, USAT moved swiftly and successfully, working with its card-processing partners, to develop a solution to overcome the potential negative impact to our industry arising from recent increased debit card interchange fees,” Michael Lawlor, senior vice president of sales, said in the release. Lawlor was not available for an interview Friday afternoon.

Visa declined to comment. The USA Technologies release notes that in addition to Visa debit and prepaid cards, machines in its network will continue to accept Visa, MasterCard, American Express, and Discover credit cards but makes no mention of MasterCard debit cards. In a statement to Digital Transactions News, however, a company spokesperson said, “We currently continue to accept MasterCard debit cards and we hope to continue to accept them in the future.”

How long into the future is uncertain. “During the term of the [Visa] agreement, the company does not anticipate accepting any debit cards with interchange fees that are higher than the rates provided under the agreement,” the regulatory filing says.

A MasterCard spokesperson said by e-mail that, “What was thought to be speculation about the impacts of arbitrary price controls on the free market is now reality. We understand the challenges some of our customers are facing as a result of this new legislation. To that point, we will continue to assess the evolving landscape and manage our business with a strategic, targeted approach to ensure our products are both issued and accepted in a manner that delivers value to all of our stakeholders.”

The spokesperson was referring to the Fed regulations implementing the Durbin Amendment in 2010’s Dodd-Frank Act, a law that requires “reasonable and proportional” interchange pricing on debit cards issued by financial institutions with more than $10 billion in assets. A number of observers have noted that for small-ticket transactions, Visa and MasterCard’s new interchange schedules effective last month turned the Fed’s cap into a flat price. That tactic raises costs on debit transactions of about $11 or less.

For unregulated debit cards, those from issuers with fewer than $10 billion in assets, MasterCard’s new interchange schedule retains the old small-ticket rate of 1.55% plus 4 cents while Visa’s raises it slightly to 1.60% plus 5 cents.

Apriva Inc., another provider of card services for vending machines, last month said it was working to extend a Visa program that makes acceptance costs palatable for machine owners. That deal is set to expire at the end of the year.


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