AmEx May Be Behind the Latest MasterCard Rate Hike

The immediate reaction among industry observers to the disclosure last week that MasterCard International Inc. is raising its interchange rates on some credit card transaction categories effective April 2 was that the move is meant to recoup issuer income lost in the major debit card settlement reached last year. But it may also mean the bank card networks are keeping a wary eye on American Express Co. as the T&E giant begins to score some successes in its efforts to woo banks to issue AmEx cards. In the wake of the settlement of the massive Wal-Mart case, both bank card networks have slashed interchange rates on signature-based, or so-called offline, debit cards, leading to pressure among their members to compensate for lost fee income. With MasterCard's latest pricing move on credit cards, “they're just taking out of one pocket and putting it back in another of their own,” says Doug Mills, who heads up sales at Debitman Card Inc., Chico, Calif., and is a former long-time executive with Associated Grocers, a network of independently owned supermarkets in the Northwest. Adds Marc Abbey, a partner at First Annapolis Consulting: “I doubt you'd get anybody at the card associations to draw a linkage between the two things, but credit is one way Visa and MasterCard can influence the impact” of the reductions in debit rates. But MasterCard may have its eye as much on AmEx as on fee income, say some. AmEx is aggressively courting banks to issue its cards now that a federal appeals court has upheld a lower court ruling striking down a rule at the bank card companies that prevents their members from issuing cards from AmEx or Discover Financial Services Inc. Most recently, AmEx announced it has signed MBNA Corp. and looks to do several more major deals this year. Visa and MasterCard have said they will appeal the case to the U.S. Supreme Court, and AmEx and MBNA say they will hold off marketing their alliance until this final appeal is decided. Now, though, the bank card networks may be feeling some heat to make their cards more attractive to their members. Banks that issue cards receive interchange income from merchant acquirers. “I'm sure the AmEx strategy is part of what's influencing interchange, both in New York and Foster City,” says Abbey, referring to the homes of MasterCard (Purchase, N.Y.) and Visa (in California). Debitman's Mills argues that for that reason a rate increase is probably in the works at Visa. “I can't imagine Visa will sit there and let a MasterCard issuer enjoy an advantage that a Visa issuer doesn't have,” he says. Neither MasterCard nor Visa returned calls seeking comment. MasterCard is raising its credit card interchange rates on half a dozen consumer-transaction categories and on a further eight corporate card categories. The Merit III rate, for example, which applies to most merchants, is rising from 1.43% plus 10 cents to 1.54% plus a dime, an 8% increase.