September 9, 2011
Visa Inc.’s interchange schedule set to take effect Oct. 1, the day new federal debit card interchange price controls also become effective, cuts a few rates for non-regulated debit issuers but clearly encourages issuers to pump out more prepaid cards. Visa also is eliminating volume-based tiers for supermarkets and retailers on its signature debit cards and Interlink PIN-based debit cards.
The rates are listed in an Aug. 19 Visa bulletin to merchant acquirers and issuers obtained by Digital Transactions News. Visa and MasterCard Inc. typically update their interchange schedules twice a year, in the spring and fall, with major changes usually coming in the spring. But 2011 is no typical year because first-ever U.S. debit interchange price controls are about to go into effect as a result of the Federal Reserve Board’s interchange and network-affiliation rules implementing the Durbin Amendment in 2010’s Dodd Frank Act.
The Fed on June 29 set basic interchange at 21 cents plus 0.05% of the sale for both signature and PIN debit for issuers with more than $10 billion in assets. General-purpose reloadable prepaid cards, however, are exempt from price controls no matter the issuer’s size, provided the cards clear a number of other hurdles set by the Fed. That means big banks that no longer see conventional debit as attractive might find greener pastures in prepaid cards.
Visa declined to talk about the upcoming changes. The new schedule adjusts rates in 19 interchange categories for Visa-branded prepaid cards, with most of them increasing. The basic retail rate, for example, will go from 0.95% plus 20 cents to 1.15% plus 15 cents. On a typical $38 debit card sale, that rate will generate 5% more in interchange: 59 cents versus 56 cents under current rates.
Visa’s prepaid card supermarket rate also is increasing from 0.95% plus 20 cents to 1.15% plus 15 cents, but the 35-cent transaction cap remains in place. That cap will result in no increase on a $38 sale, however.
The biggest increase in the Visa-branded prepaid categories is for automated fuel dispenser transactions, where the rate will go from 0.75% plus 17 cents, with a 95-cent cap, to 1.15% plus 15 cents, with the cap remaining. On a $50 fill-up, the merchant will pay 73 cents versus 55 cents currently, an increase of 33%.
Another rate applicable to service-station prepaid transactions will boost interchange by 29% on a $38 sale. A number of other rates in the e-commerce and travel-and-entertainment categories are going up anywhere from the teens to 30%. But rates for utilities and tax payments, two merchant sectors the card networks are trying hard to develop, will fall for both Visa-branded regular debit cards and prepaid cards.
“[Visa] clearly is upping prepaid across the board and giving lip service to some categories,” says consultant Steve Mott, chief executive of Stamford, Conn.-based BetterBuyDesign.
With Interlink, Visa is reducing pricing for supermarkets, the most important merchant category for debit and prepaid cards. The regular Interlink supermarket rate will go from 0.95% plus 20 cents with a 35-cent cap to 0.8% and 15 cents and a 33-cent cap. That will result in a 6% drop in interchange on a $38 sale. Interlink’s prepaid card supermarket rate will change from 0.95% plus 20 cents to 1.15% plus 15 cents, with the new rate retaining a 35-cent cap, meaning no change in interchange on a $38 sale. Regular Interlink fuel transactions will generate 1% more in interchange on a $50 sale, but the expense will rise 33% with an Interlink prepaid card.
Interlink is under pressure because the Durbin Amendment will ban so-called exclusive network affiliations in which a debit card offers only networks owned by the same company, such as Visa for signature debit and Interlink for PIN debit. Observers expect Interlink, the largest point-of-sale PIN-debit brand, to lose business as issuers shop for unaffiliated networks.
Meanwhile, Visa is raising interchange for small transactions. The Visa-branded signature and prepaid small-ticket rates will go from 1.55% of the sale plus 4 cents to 1.6% plus 5 cents, which means a 15% increase on a $2 sale and a 9% increase on the $8 sale typical in fast-food restaurants.
While Visa is eliminating the volume-based thresholds for signature and Interlink supermarket transactions with the Oct. 1 schedule, the network will support existing merchants qualifying for the rates until April 2012.
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